tag:blogger.com,1999:blog-78812380573612181742024-03-05T10:34:02.476+01:00TRADING WEEKSSIMPLE STRICT AND DIVERSIFIED RULES TO GENERATE ROBUST CAPITAL GROWTH Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.comBlogger6437140tag:blogger.com,1999:blog-7881238057361218174.post-6761480062203800562015-06-20T14:15:00.001+02:002015-06-20T14:15:05.921+02:00The FOMC Decision – Studying the Flight of Birds and Gold<p>by <a href="http://www.acting-man.com/?author=6">Pater Tenebrarum</a></p> <h5><strong>Federal Open Yawn Committee puts Kremlinologists all over the World to Sleep …</strong></h5> <p>The Fed’s monetary policy statement delivered on Wednesday was the non-surprise/yawn-inducer of the year. Readers can take a look at the trusty <a href="http://projects.wsj.com/fed-statement-tracker/">WSJ statement tracker</a>, which reveals that apart from a few minor and unimportant changes, the statement was basically a carbon copy of the last one.</p> <p>Not a single dissent mars this bland exercise in bureaucratese, so there isn’t even anything to report on that front. If you have trouble sleeping, reading this statement might be a very good alternative to Valium.</p> <p>So did anything noteworthy happen? Well, yes. Apparently market participants believe they have to react to the forecasts of a bunch of bureaucrats who are quite likely among the worst economic forecasters in the world – and that’s really saying something.</p> <p><img alt="augurs" src="http://www.acting-man.com/blog/media/2015/06/augurs.jpg" width="600" height="450" />Augurs in ancient Rome, observing the behavior of hens.</p> <h5><strong>The High Priests of Augury</strong></h5> <p>It is widely assumed that it is the job of economists to “make predictions”. This is actually not the case. The job of making predictions is that of augurs and soothsayers. In fact, modern-day economists strike us as today’s equivalent of the caste of augurs in ancient Rome.</p> <p>As <a href="https://en.wikipedia.org/wiki/Augur">Wikipedia informs</a> us:</p> <blockquote> <p>“The augur was a priest and official in the classical world, especially ancient Rome and Etruria. <strong><em>His main role was the practice of augury, interpreting the will of the gods by studying the flight of birds</em></strong>: whether they are flying in groups or alone, what noises they make as they fly, direction of flight and what kind of birds they are. This was known as “taking the auspices.” <strong><em>The ceremony and function of the augur was central to any major undertaking in Roman society—public or private—including matters of war, commerce, and religion.”</em></strong></p> </blockquote> <p>(emphasis added)</p> <p>Instead of studying the entrails of freshly slaughtered animals or the flight patterns of birds, today’s augurs are poring over statistics in order to “take the auspices” – but the success rate of their predictions is depressingly similar to that of the ancient birdwatchers. If the members of the FOMC board, the<em> high priests</em> of this caste in modern times, were to retire tomorrow and never again utter a forecast, the global economic soothsaying hit rate would likely improve considerably.</p> <p>It is all the more astonishing that in light of the evidence to date – the chance that an economic forecast by the Fed actually pans out is approximately 0.0% (give or take a zero behind the decimal point) – market participants are actually paying attention to nonsense like the infamous “dot plot”.</p> <p><a href="http://www.acting-man.com/blog/media/2015/06/dot-plot-june-2015.png"><img alt="dot plot june 2015" src="http://www.acting-man.com/blog/media/2015/06/dot-plot-june-2015.png" width="600" height="355" /></a>The bizarre “dot plot” which indicates the estimates of FOMC members regarding the “future path of monetary policy”. Might as well throw darts, click to enlarge.</p> <p>The Fed is actually not really “planning” anything – it is just reacting, mainly to data that have become meaningless by the time it reacts, as they simply describe the past. It is an organization that is driving forward with its eyes firmly fixed on the rear-view mirror. Meanwhile, any estimates of future economic trends provided by its members have historically proved to be an exercise in futility. Charts like the one above aren’t revealing any earth-shattering insights.</p> <p>This brings us to the market reaction to the FOMC statement. So far we have seen both immediate and delayed reactions, which seemed largely based on the dots on the above “dot plot” dropping a bit compared to last time. These reactions have included a sharp pullback in the US dollar, a noteworthy jump in the gold price, and <em>quelle surprise</em>, a sizable rally in the stock market. Evidently the idea is that the most extensively pre-announced rate hike in all of history might be postponed even further.</p> <p>This is quite funny, because it should make little to no difference to the economy whether or not the Federal Funds target rate corridor is set a handful of basis points higher. It might make a difference to a few carry trades, but any dollar carry trades that existed (using the dollar as a funding currency) have likely been blown out of the water long ago.</p> <h5><strong>Does it Make Sense to Buy Gold Based on Dot Plot Fluctuations? </strong></h5> <p><a href="http://www.acting-man.com/blog/media/2015/06/August-gold-COMEX-20-minutes.png"><img alt="August gold, COMEX- 20 minutes" src="http://www.acting-man.com/blog/media/2015/06/August-gold-COMEX-20-minutes.png" width="600" height="408" /></a>A 20 minute candlestick chart of the August gold contract over the past three trading days click to enlarge.</p> <p>As you can see above, traders have apparently also bought gold based on the premise that a Fed rate hike might happen somewhat later. It should be noted that gold was actually quite oversold going into the FOMC meeting, so it may well have bounced no matter what. Assuming though that the “dot plot” was the trigger, the question is: Does this make any sense?</p> <p>Apart from the fact that the “dot plot” has actually no predictive value, there are other grounds for believing that this reasoning may be flawed. Don’t get us wrong – we have nothing against gold going higher. We believe its current price doesn’t adequately reflect extant systemic risk, although we must also concede that the current fundamental backdrop isn’t unequivocally bullish (as to why, see our list of <a href="http://www.acting-man.com/?p=6526">fundamental drivers of the gold price</a>). However, it appears that there is enough “insurance buying” of gold combined with fairly strong reservation demand from current gold holders to lend strong support to the price near current levels.</p> <p>Normally rising interest rates are bearish for gold, <em>ceteris paribus</em> (if nominal rates were to rise, while inflation expectations rise even faster, the <em>ceteris</em> would of course no longer be <em>paribus</em>). The low interest rate backdrop and the still brisk growth rate of the US money supply (and the even brisker growth rate of the euro area money supply), which would normally be bullish for gold, are currently mainly supportive of the bubble in assorted risk assets. As long as the bubble in risk continues to expand, market participants won’t have much interest in gold.</p> <p>As a result of this, gold bulls should probably root for a rate hike. In the very short term, the gold market would likely react negatively to a rate hike. But the gold market traditionally has a tendency to be extremely forward looking. This is probably why gold didn’t rally when “QE3” was launched (apart from losing its euro area crisis premium). Gold market participants intuited correctly that QE3 would be followed by a tightening of monetary policy, which has indeed happened via “tapering” and the cessation of QE3. Any move by the Fed that endangers the bubble in risk should therefore be bullish for gold. The gold market would soon look beyond the tightening of monetary policy and begin to discount its inevitable loosening in the future.</p> <p>A rate hike delay might turn out to be unequivocally bullish for gold if it eventually becomes apparent that there will <em>never </em>be a rate hike, i.e., if the QE spigot is reopened without an intervening rate hike. This possibility cannot be dismissed out of hand, in spite of Mrs. Yellen’s seeming determination to get at least one rate hike in before the year ends. We cannot dismiss it, because we don’t know what exactly will prick the bubble. Eventually there will be a reversal of the credit expansion-induced distortions in relative prices in the economy and a bust will begin. While this normally requires rising rates and a sharp slowdown in money supply growth, the current situation is highly unusual and things may not play out in line with the traditional script.</p> <p><strong></strong></p> <h5><strong>Conclusion</strong></h5> <p>Government intervention in the economy is actually the main reason why economists are bothering to make predictions about a multitude of statistics nowadays. Most of their usually quite inaccurate macro-economic forecasts would be of little use in an unhampered market economy, and their market value would accordingly be very low. Given its record, it seems especially odd that people are taking actions in the markets based on the forecasts released by the FOMC.</p> <p>With respect to the gold market, what is actually medium to long term bullish or bearish is often not as obvious as is generally believed. One must keep in mind that the gold market tends to discount future developments far in advance; because of this, superficially bullish or bearish developments may ultimately turn out to have a different effect than expected.</p> <p><a href="http://www.acting-man.com/?p=38058&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+acting-man%2FOGxh+%28Acting+Man%29">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-92126207372933568742015-03-24T19:28:00.001+01:002015-03-24T19:28:56.861+01:00Who Left the Crash Window Open?<p>by Charles Hugh Smith</p> <p><i>Can stocks keep hitting new highs even as sales and profits fall?</i></p> <p><b> <br /></b></p> <p><b>Given that we live in a world where a modest 3% decline in the stock market triggers panicky demands for more quantitative easing (QE 4), few observers expect much a correction, regardless of the souring fundamentals</b> such as sales and profits.</p> <p><b>A correspondent notified me of a Puetz "crash" window</b> (based on the analysis of Stephen J. Puetz) opening in late March-early April. (Since I am not a subscriber to Puetz's work, I can't confirm this.) As I understand it, while these windows do not predict a crash/sharp correction, such moves tend to occur in these windows, which are based on cycles and events such as eclipses.</p> <p>So I decided to look for any evidence that a sharp correction might be in the offing.</p> <p><b>One classic precursor of corrections is weakening market leaders and narrowing of breadth/liquidity/volume.</b> When leaders who pulled the index higher roll over, the index is usually not far behind.</p> <p>Consider the chart of Apple, (AAPL), long the engine that has been pulling the indices higher for years. Apple's chart is looking weak:</p> <p><img border="0" src="http://www.oftwominds.com/photos2015/aapl-3-21.png" align="center" /></p> <p><b> <br /></b></p> <p><b>Another classic precursor of a decline is high levels of complacency</b>, which is reflected in a low VIX or volatility index. When fear has been vanquished, the VIX declines to the 10-12 range. These levels reliably indicate market tops.</p> <p>Interestingly, the VIX has been tracing out a descending wedge, a pattern that is usually bullish. (The VIX soars when stocks fall sharply and fear comes alive.)</p> <p><img border="0" src="http://www.oftwominds.com/photos2015/vix3-15.png" align="center" /></p> <p>The signs of a global slowdown are so plentiful that even the most ardent bulls should start feeling caution. Yet the central-bank-driven stock markets in the UK and Germany are hitting new highs, and the S&P 500 (SPX) in the US is within a few points of its all-time high.</p> <p><b>But the S&P 500 is acting rather tired.</b> Despite the declining VIX, the SPX has only managed a tepid 30-point gain in the past three months--months that are typically among the best in the calendar year for strong equity gains. This is characteristic not of a robust Bull trend but of a topping process--a process that typically takes several months to manifest.</p> <p><img border="0" src="http://www.oftwominds.com/photos2015/spx3-15.png" align="center" /></p> <p>Can stocks keep hitting new highs even as sales and profits fall? <b>History suggests we've reached Peak Central Banking</b>--the faith that central bank easing can push markets higher forever, regardless of fundamentals, has reached near-euphoric levels. Few fear a decline or an increase in volatility.</p> <p>So it's all smooth sailing even as the global economy slides into recession? That is a disconnect from reality that beggars belief.</p> <p>Perhaps the VIX will soon awaken from its slumbers, reflecting a "surprise" plummet in stocks. </p> <p><a href="http://charleshughsmith.blogspot.it/2015/03/who-left-crash-window-open.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+google/RzFQ+(oftwominds)">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-25438308856472936642015-03-22T17:27:00.001+01:002015-03-22T18:03:37.625+01:00Free Super Stocks Signals - Control your risk with simple and winning rules<div align="center"> <table cellspacing="0" cellpadding="2" width="996" align="center" border="0"><tbody> <tr> <td valign="top" width="495"> <p align="center"><a href="https://app.box.com/s/uhil5mgycp520s2h56mf"><img title="Super Stocks Intestazione" border="0" alt="Super Stocks Intestazione" src="http://lh3.ggpht.com/-AFHF10rjPtk/Uyn_UblkjKI/AAAAAAAAEJg/e3S3SjJ60e0/Super%252520Stocks%252520Intestazione%25255B6%25255D.jpg?imgmax=800" width="426" height="351" /></a></p> <p align="center"><a href="https://app.box.com/s/uhil5mgycp520s2h56mf">Download Historical Results Pdf</a></p> <p align="center"><a href="https://app.box.com/s/gsj3q5euo3eq4c80ghq6">Dowload some trades example</a></p> </td> <td valign="top" width="499"> <p align="center"> </p> <p align="center"><font size="5">FREE SUPER STOCKS SIGNALS!</font></p> <p align="center">We are happy to offer to a small number of selected investors the signal service or managed accounts service on all the stocks of Dow Jones, Nasdaq and Nyse, using our Super Stocks strategy. 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Operate with any financial instrument is safe, even higher if working on derivatives. Be sure to operate only with capital that you can lose. Past performance of the methods described on this blog do not constitute any guarantee for future earnings. The reader should be held responsible for the risks of their investments and for making use of the information contained in the pages of this blog. Trading Weeks should not be considered in any way responsible for any financial losses suffered by the user of the information contained on this blog.</i></p> </td> </tr> </tbody></table> </div> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-85831443184578083652015-03-16T21:35:00.001+01:002015-03-16T21:35:03.080+01:00Italian Bad Debt Hits Record $197 Billion As Bank Lending Contracts For Unprecedented 33 Consecutive Months<p>by <a href="http://www.zerohedge.com/users/tyler-durden">Tyler Durden</a></p> <p>Repeat after us: the biggest threat facing Europe's banking system is not a Grexit, is not the Austrian "bad bank" black swan (although it is pretty bad),<strong> it is the trillions in non-performing loans on the balance sheets of European banks</strong>, which Europe has no idea how to and which continue to multiply in the process threatening to impair depositors with bail-ins (see Cyprus). It is also why, after years of debate, the ECB finally agreed to flood European banks with what it hopes will be over €1 trillion in excess reserves <em>a la </em>the US (of course, if <a href="http://www.zerohedge.com/news/few-quick-reminders-why-nothing-has-been-fixed-europe-and-why-ltro-3-not-coming">Zero Hedge</a>, and <a href="http://www.zerohedge.com/news/2015-03-15/full-explanation-how-ecb-broke-europes-bond-market">now JPM, </a>is correct, the ECB will break the bond market long before it achieves its goal) in order to mitigate the relentless cash demands of a constantly rising NPLs. </p> <p>And unfortunately for the third largest issuer of sovereign bonds in the world, Italy - the country all eyes will focus on once Greece and/or Spain exit the Eurozone - when it comes to NPLs things are going from bad to worse because as <a href="http://www.reuters.com/article/2015/03/16/italy-lending-idUSI6N0W800O20150316">Reuters reported earlier</a>, citing ABI, gross bad loans at Italian lenders continued to rise, totaling 185.5 billion euros ($196.5 billion) in January from 183.7 billion euros a month earlier.</p> <p>As the chart below shows, <strong>Italy now has over 10% of its  GDP in the form of bad debt.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/03/20150317_italy.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/03/20150317_italy_0.jpg" width="600" height="315" /></a></p> <p>But there has to be a silver lining though, right? If the banks are issuing loans with reckless abandon, at least many more loans are entering the general population right, something which also happens to be the biggest hurdle for ECB's clogged QE plumbing - the unwillingness of European banks to lend money. </p> <p>Well, sorry, no silver lining, because as NPLs rose, total debt issuance contracted once more. Again Reuters:</p> <blockquote> <p>Lending by Italian banks to families and businesses decreased 1.4 percent year-on-year in February, <strong>its 33rd consecutive monthly fall, </strong>even though the pace of decline is slowing, banking association ABI said. ABI said the February figure was the lowest rate of decline since July 2012. </p> <p>Loans to households and non-financial companies had fallen 1.5 percent in January, a figure revised from a 1.8 percent drop announced a month ago. </p> <p>Lending by Italian banks has been steadily falling since May 2012 as the euro zone's third biggest economy grappled with its longest recession since World War II.</p> </blockquote> <p>That's ok, though, because all that needs to happen for banks to resume lending after nearly 3 years of consecutive declines in loan issuance, is for the ECB to start printing money. Because Draghi said so. Oh, and for Italy et al to change the definition of GDP once again so that economic growth under a Keynesian voodoo regime is no longer purely a function of how much credit is being created. Because across Europe, none is. </p> <p><a href="http://www.zerohedge.com/news/2015-03-16/italian-bed-debt-hits-record-197-billion-bank-lending-contracts-unprecedented-33-con">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-77702673832322922752015-03-11T16:42:00.001+01:002015-03-11T16:42:12.695+01:00The End of the Great Debt Cycle<p>by <a href="http://www.acting-man.com/?author=2650">Bill Bonner</a></p> <h5><strong>Rushing Toward the Limits</strong></h5> <p>“It’s the end of the great debt cycle,” says hedge fund manager Ray Dalio of Bridgewater Associates, taking the words out of our mouth. Bond fund manager Bill Gross adds context:</p> <blockquote> <p>In the past 20 to 30 years, credit has grown to such an extreme globally that debt levels and the ability to service that debt are at risk. […] Why doesn’t the debt supercycle keep expanding? Because there are limits.</p> </blockquote> <p>Neither Mr. Dalio nor Mr. Gross nor we know precisely where those limits are. But the Europeans and the Japanese are rushing toward them.</p> <p><img alt="3635983541_b568ca6216_z" src="http://www.acting-man.com/blog/media/2015/03/3635983541_b568ca6216_z.png" width="600" height="334" /></p> <p>Photo credit: <a href="http://artyfolio.0fees.net/portfolio_three.html">William Stark</a></p> <h5><strong>A Poke in the Eye for Lenders</strong></h5> <p>In Europe, bond yields are lower than they’ve ever been. Between $2 trillion and $3 trillion in sovereign and corporate bonds now trade at negative nominal yields. We don’t need to tell you that it is unnatural and perverse for lenders to accept a poke in the eye for giving up their valuable savings.</p> <p>But that’s just part of the perversity of the present system – no real savings are involved. The money never existed in the first place. Getting a negative yield seems almost appropriate, if nevertheless incomprehensible. Today, banks create “money” from thin air, in the form of new deposits, when they make loans.</p> <p>As our friend Richard Duncan explains in his book <em>The New Depression</em>: <em>The Breakdown of the Paper Money Economy</em>, by the turn of the new millennium the reserve requirement – whereby banks are forced to hold some cash or gold in reserve against new loans – was so low that it played “practically no role whatsoever in constraining credit creation.”</p> <p>That means as long as banks meet regulators’ capital adequacy requirements, they can create as much new money (loans) as they want. No risk of mining accidents. No need for anyone to sweat or strain. No self-discipline or forbearance required. Savers can eat their cake. And borrowers can have it too.</p> <p><a href="http://www.acting-man.com/blog/media/2015/03/TMS-2-vs.-bank-reserves-linear.png"><img alt="TMS-2 vs. bank reserves, linear" src="http://www.acting-man.com/blog/media/2015/03/TMS-2-vs.-bank-reserves-linear-1024x680.png" width="600" height="399" /></a></p> <p>Mr. Duncan is correct about the fact that so-called “reserve requirements” have been utterly meaningless to the expansion of the credit and money supply. Reserves only rose sharply after the 2008 crisis, as a balance sheet item created by QE. QE also vastly increased the money supply (more than doubling it between early 2008 and early 2015) when banks temporarily slowed down their inflationary lending – click to enlarge.</p> <h5><strong>Doomed Public Finances</strong></h5> <p>Economists who still have their wits about them – if there are any left – are baffled. The lowest bond yields in history… and along comes the European Central Bank with a plan to drive them lower by way of €1.1 trillion ($1.2 trillion) of QE. What is the sense of it?</p> <p>No one can say. Rather, no one wants to admit that the real motive is to relieve banks of their bad debt. Banks bought the debt of bankrupt European governments. Everybody knows there is no way governments will pay it back. Fortunately, when central banks buy government debt, it is effectively canceled – forgotten forever. So, the ECB helpfully exchanges this bad debt for new bank reserves before the public catches on.</p> <p>Over in Japan the government has been running budget deficits for 25 years – funded largely by Japanese “salary-men” who think they are saving money for their retirements. What a disappointment it will be when they discover that the money was not saved at all, but spent by their government.</p> <p>And now, Tokyo’s debts have grown so large that 43% of tax receipts are required just to service its debt, to say nothing of the amounts needed for current and future deficits. You can imagine how far you’d get if you tried this at home. Try living on 57% of what you earn (the rest goes to pay your creditors)… while still spending more than your income. See how long that would last…</p> <p>The Japanese are too polite to mention it, but their public finances are doomed. And it can only be a matter of months – okay, maybe years – before the entire Ponzi scheme blows up.</p> <p><a href="http://www.acting-man.com/blog/media/2015/03/Public-debt-to-GDP-ratios.png"><img alt="Public debt to GDP ratios" src="http://www.acting-man.com/blog/media/2015/03/Public-debt-to-GDP-ratios.png" width="600" height="399" /></a></p> <p>Gross government debt to GDP ratios of selected future insolvency cases – click to enlarge.</p> <h5><strong>Tokyo … Then Harare</strong></h5> <p>Since 2009, we’ve been saying that our itinerary was likely “Tokyo… then Harare.”</p> <p>By that, we meant that we were probably going to experience a Japan-like deflationary slump… and then a Zimbabwe-like hyperinflation.</p> <p>We are now in year six of that slumpy, lumpy, bumpy ride. The US economy has been growing, but it is the weakest postwar “recovery” on record. And what little growth we saw was in asset prices. And it was bought with about $4 trillion in central bank stimulus. Few people realize it, but this also retarded real economic growth.</p> <p>You can see that by looking at the difference between what has happened in the financial markets and what has happened in the real economy. Wall Street is as bubbly as ever. But Main Street is still struggling. Real wages and real business investment, for example – things that mark and measure genuine prosperity – are as limp as a Tokyo noodle. Why?</p> <p>Prosperity depends on savings and capital formation. You have to devote real resources to new output capacity. You have to hire people and find new and better ways of doing things. But business investment has gone down since 2007. Based on fourth-quarter figures from 2007 and 2014 and annualized, $400 billion was invested in business development in 2007 against only $300 billion in 2014.</p> <p><img alt="US-Nonfinancial-Companies-Investment-and-Buybacks-600x413" src="http://www.acting-man.com/blog/media/2015/03/US-Nonfinancial-Companies-Investment-and-Buybacks-600x413.jpg" width="600" height="413" /></p> <p>Although this chart by Smithers & Co is slightly dated by now, it does get the point across …</p> <h5><strong>Borrowing Binge</strong></h5> <p>Meanwhile, businesses borrowed about $3 trillion more. Where did all this money go? It appears to have gone into share buybacks, mergers and acquisitions, bonuses, fees and other speculator payoffs. These things benefit the 1% of the 1% – the insiders who are in on the deals. They do nothing for the real economy, except deprive it of the capital it needs to make real progress.</p> <p>In 2000, we had a bubble in tech stocks. In 2007, we had bubbles in finance and housing. Now, we have bubbles in corporate bonds ($14 trillion)… securitized auto loans ($20 billion)… and student loans ($1.2 trillion).</p> <p>Pop … pop … pop – that’s what will happen to these bubbles. And when it does, it will complete our travel to Tokyo. That is when our slumpy ride turns into a terrifying train wreck. Yes, Tokyo deflation before we get to Harare hyperinflation.</p> <p><img alt="Zimbabwe-hyperinflation" src="http://www.acting-man.com/blog/media/2015/03/Zimbabwe-hyperinflation.png" width="600" height="467" /></p> <p>Exponential growth in money supply inflation and its effect on prices in Zimbabwe.</p> <p>Charts by: St. Louis Federal Reserve Research, Bloomberg, Smithers & Co., pixshark</p> <p>The above article is taken from the Diary of a Rogue Economist originally written for <a href="http://bonnerandpartners.com/">Bonner & Partners</a>. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.</p> <p><a href="http://www.acting-man.com/?p=36300">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-80315972117514589402015-03-08T21:27:00.001+01:002015-03-08T21:27:05.535+01:00The Week Ahead: Does Your Portfolio Need Adjusting?<p>by Tom Aspray</p> <p>The US stock market was not impressed with the details of the ECB stimulus plan and then sold off sharply Friday in reaction to the very strong jobs report. <br />For February, 295,000 new jobs were added, considerably more than the estimate of 230,000. Bond yields rose sharply on the news and interest rate sensitive stocks bore the brunt of the selling.</p> <p>The impact of weaker crude oil prices and the strong dollar on earnings had many again questioning the strength of the US economy. After the jobs report, the focus has turned again to what language, if any, the Fed may change at their March 17 meeting. Investors should not let this change their strategy.</p> <p>Many have likely panicked over similar concerns in the past only to have the market move higher after the weak longs have been shaken out of the market. This obsession with the Fed’s verbiage creates more uncertainty and should increase the bearish sentiment as I hoped last week (<em><a href="http://www.moneyshow.com/articles.asp?aid=Charts09-42165&scode=021551">Calling All Bears</a></em>).</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_A_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_A_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The recent ETF flow data from <a href="http://www.markit.com/Commentary/Get/05032015-Economics-Investor-sentiment-sours-from-US-equities-towards-Eurozone-and-Japan">Markit</a> shows that-so far in the first quarter-$16.8 billion has moved out of US equity funds. The big beneficiaries have been the Japanese and the EuroZone markets where a looser monetary policy is being pursued. One needs to remember that over $100 billion moved into US equity ETFs in the last quarter of 2014.</p> <p>The German Dax has been very strong so far in 2015 as it is up almost 18%. As pointed out on January 23, the Dax (<a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru12315_B_large.gif&aid=GURU-41917&scode=021551">see chart</a>) had completed its continuation pattern. This bullish action suggested that the US markets would also soon breakout to the upside as they did in February.</p> <p>Many are therefore wondering whether they should be shifting into the overseas stocks markets or making other changes in their portfolio. Let’s look at the overseas stock markets first.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_B_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_B_med.gif" /></a></p> <p>Click to Enlarge</p> <p>Since the start of 2015, the <strong>Spyder Trust</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=SPY">SPY</a>) is up just about 2%, but it is lagging well behind the <strong>iShares MSCI EMU Index</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=EZU">EZU</a>) which is up over 5%. <a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=EZU">EZU</a> has total assets of $7.93 billion with an expense ratio of 0.48%. There are 236 stocks in the ETF with just 24.6% in the top ten holdings and it has a yield of 2.94%.</p> <p><strong>The</strong><strong> Vanguard FTSE Pacific</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=VPL">VPL</a>) is doing even better as it is up over 7.5% so far in 2015. This ETF has an expense ratio of 0.12% with 812 stocks in the ETF. In addition to having 56.4% of its holdings in Japan, it has 19.3% in Australia, 11.3% in Korea, 8.9% in Hong Kong, and 3.7% in Singapore. It has a yield of 2.56%.</p> <p>In last month’s <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-42069&scode=021551"><em>European ETFs on Sale</em></a> I recommended both <a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=EZU">EZU</a> and <strong>SPDR STOXX Europe 50</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=FEU">FEU</a>) in light of their discounted price, based on the cyclically adjusted price/earnings ratio. As of the end of January, the discount was over 25% below the long-term average.</p> <p>Neither of the European ETFs have had enough of a pullback to reach the previously suggested buying levels. It is my view that this week’s lower close is the start of a correction in these two overseas ETFs. Therefore, I would not chase them at current levels as I think there will be a better entry point in the next few weeks and the weekly charts explain why I have this opinion.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_C_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_C_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The <strong>iShares MSCI EMU Index</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=EZU">EZU</a>) looks ready to close the week lower and the 20-week EMA is now at $37.71. There is further support in the $37-$37.40 area with the quarterly pivot at $36.38.</p> <p>The relative performance broke its downtrend at the end of January and is trying to hold above its rising WMA. The <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-30559/The-Best-Volume-Indicator/&scode=021551">weekly OBV</a> completed its bottom formation in January as resistance at line b, was overcome. Investors should go 50% long <a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=EZU">EZU</a> at $37.59 and 50% long at $36.88, with a stop at $35.27.</p> <p><strong>The</strong><strong> Vanguard FTSE Pacific</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=VPL">VPL</a>) has been trading near its weekly starc+ band for the past few weeks as it is back to strong resistance from $61-$62. The monthly projected pivot support and the 20-week EMA are now at $58.94. There is additional support at $58.25 with the quarterly pivot at $57.51. A completion of the weekly trading range, lines c and d, has upside targets in the $70-$72 area.</p> <p>The weekly <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-28842/Spot-Market-Leaders-in-Any-Time-Frame/&scode=021551">relative performance</a> is above its WMA, but is still well below the downtrend, line e. A strong new uptrend is needed to indicate it is outperforming the S&P 500. The OBV has surged sharply to the upside breaking through the resistance (line f) in early January. Investors should go 50% long <a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=VPL">VPL</a> at $59.24 and 50% long at $58.36 with a stop at $56.83.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_D_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_D_med.gif" /></a></p> <p>Click to Enlarge</p> <p>There has been some improvement in the EuroZone economies and it has been my view since last summer that their economy would turnaround in 2015. The EuroZone PMI hit a seven month high and is very close to breaking its downtrend, line a. A move above the 55 level would be very positive and job creation has just hit a three year high. A drop below support at line b, would be a sign of weakness.</p> <p>The euro dropped sharply last week at the 1.09 level and this will continue to drive the exports from the EuroZone. Denmark cut their deposit rate last month as it joins the long list of countries that are lowering their rates.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_E_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_E_med.gif" /></a></p> <p>Click to Enlarge</p> <p>Things are not nearly looking as good for the Russian economy as its PMI is in a well established downtrend after a brief bounce back above the 50 level last year. This is likely to put more pressure on Putin and may be enough to cut into his support at home or slow down his overseas aggression. Let’s hope so.</p> <p>For the US, the manufacturing data is still mixed as last week the PMI Manufacturing Index was better than expected while the ISM manufacturing Index was a bit weaker. It has declined steadily from last October’s peak at 57.9.</p> <p>This week’s economic calendar is light with Retail Sales, Import and Export Prices, as well as Business Inventories coming out on Thursday. The Producer Price Index will be released on Friday along with the mid-month reading on consumer sentiment from the University of Michigan.</p> <p><strong>What to Watch </strong></p> <p>The strong jobs report certainly shook the market on Friday and the sharply lower weekly close likely sets the stage for more selling this week. The light economic calendar will turn the focus on the bond market as well as the EuroZone.</p> <p>In <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-42165&scode=021551">Thursday’s daily column</a> I reviewed the daily technical studies and pointed out that an increase in bearish sentiment was needed before the market could move higher. The drop on Friday should create more fear as CNN’s Fear and Greed Index has dropped 16 points. On a short-term basis, Friday’s drop has created an oversold condition that should lead to a sharp rebound this week.</p> <p>In last weeks trading lesson <a href="http://www.moneyshow.com/articles.asp?aid=TEbiwkly08-42174&scode=021551"><em>Avoiding Bear Markets</em></a>, I took a look at past bear markets to point out what warning signs the market and the economy give you before the start of a bear market. There are no such signs at this time and they would take many months for the economic indicators to top out.</p> <p>There are also no signs yet of a sharp 15-20% correction at this time as the <a href="http://www.moneyshow.com/articles.asp?aid=TEbiwkly08-42002&scode=021551">warnings signs</a> are also not in place now. The patterns that one typically sees in the A/D line would take three to five weeks or more before they could develop.</p> <p>There are some divergences in the weekly volume analysis that is contrary to the positive signs from the weekly A/D lines. The new highs in the NYSE, Nasdaq 100, and S&P 500 A/D lines suggest that this is a correction.</p> <p>Now that the S&P 500 has decisively broken the support in the 2085-2090 area, the next likely support is in the 2060-2068 area. The market should bounce from this level this week. If the rally back to the 2080-90 area is weak, then a drop to the 2020 level becomes a possibility. This would be a correction of 5% from the highs.</p> <p>Sentiment is mixed, as while the put/call ratios are positive, the small speculators are heavily long the S&P futures according to COT Expert <a href="http://www.personsplanet.com/">John Person</a>.</p> <p>I still view this correction as a buying opportunity, as while the market is concerned about higher rates, the jobs data is sending a strong message that the economy continues to improve. Therefore, stocks continue to be the best bet, though yields did rise last week.</p> <p>There are many stock charts that continue to look better than the market indices and the strong A/D numbers is a healthy sign for the market. Some stocks are already starting to buck the trend as <strong>Apple</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=AAPL">AAPL</a>), which <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-42148&scode=021551">was discussed last week</a>, was up on Friday.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_F_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_F_med.gif" /></a></p> <p>Click to Enlarge</p> <p>One of the negative signs comes from the % of S&P 500 stocks <a href="http://www.moneyshow.com/articles.asp?aid=TEbiwkly08-31577">above their 50-day MAs</a> as it has turned down after failing to make it to overbought levels. The lower highs, line a, are also a reason for concern.</p> <p>The weekly chart of the NYSE Composite shows the sharply lower close last week as the 20-week EMA at 10.823 is already being tested. The monthly projected pivot support is at 10,658 with the quarterly pivot at 10,597.</p> <p>A weekly close below 10,400 at line a, would be negative with the weekly starc- band at 10,358.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_G_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_G_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The weekly <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-25814/One-Indicator-Stock-Traders-Must-Follow/&scode=021551">NYSE Advance/Decline</a> made a new high just two weeks ago as it moved through the longer-term resistance at line b. The A/D will be lower once the final weekly numbers are in, but it still will be above the support at line c and the WMA. It is a positive sign that the WMA is still clearly rising.</p> <p>The weekly OBV did not make a new high with prices and it will close the week back below its WMA. The support, at line e, is much more important as a weekly close below it would start a new downtrend.</p> <p><strong>S&P 500</strong> <br />The weekly chart of the <strong>Spyder Trust</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=SPY">SPY</a>) reveals that a low close doji sell signal was triggered last week with the close below the doji low of $210.48. The close Friday was below the daily starc- band with the 20-week EMA at $206.05. There is additional support now at $204.50-$205 with the monthly projected pivot support at $201.60.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_H_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_H_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The weekly S&P 500 A/D line made a new high the week of February 20 and its WMA is still rising. There is more important support going back over a year at line b. As I noted on Thursday, the daily A/D line (<a href="http://www.moneyshow.com/image.asp?imgSrc=DailyCharts/charts09/TD030515_1_large.gif&aid=Charts09-42165&scode=021551">see chart</a>) gave a short-term warning of Friday’s drop.</p> <p>The <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-23770/OBV:-Perfect-Indicator-for-All-Markets/">weekly on-balance volume (OBV)</a> dropped below its WMA on Friday and also failed to make a new high with prices two weeks ago. There is next strong support at the January lows and then at line c, which connects the lows from 2014.</p> <p>There is first resistance now at $210.50 and the 20-day EMA.</p> <p><strong>Dow Industrials</strong> <br />The <strong>SPDR Dow Industrials</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=DIA">DIA</a>) also closed well below the prior week’s lows with the 20-week EMA now at $176. The monthly projected pivot support is at $173.45 with the </p> <p>The weekly relative performance is trying to again turn higher as it has just tested the uptrend, line d, that goes back to the middle of last year. The weekly OBV is still above its WMA but does show a pattern of lower highs. A drop below the late January low would confirm the negative divergence.</p> <p><strong>Nasdaq 100</strong> <br />The <strong>PowerShares QQQ Trust</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=QQQ">QQQ</a>) did hold up better on Friday than the other major averages. There is next minor support at $106 with the sharply rising 20-week EMA at $103.43. This also corresponds to the breakout level, line a.</p> <p>The weekly Nasdaq 100 A/D made a new high last week and is still above the breakout level, line b. The A/D line has next support at its WMA with further at the long-term uptrend (line c).</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru030615_I_large.gif&aid=GURU-42185&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru030615_I_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The weekly OBV is acting much weaker than the A/D line as it has been diverging from prices since late 2014, line d. It has now dropped back below its WMA but is still above the January lows.</p> <p>There is short-term resistance now at $108.50-$109 with the daily starc+ band at $110.26.</p> <p><strong>Russell 2000</strong> <br />The <strong>iShares Russell 2000</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=IWM">IWM</a>) looks ready to close down 1.7% on Friday but is still barely above the three-week lows at $120.90. The rising 20-week EMA is just above $118 with the monthly pivot support at $116.85.</p> <p>The weekly Russell 2000 A/D line is still above its WMA, but has turned down after forming lower highs. The A/D line now has important support at line f.</p> <p>The weekly OBV shows a similar negative divergence, line g. A drop below the recent lows, line h, would confirm the negative divergence.</p> <p>We are still long both <a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=SPY">SPY</a> and <a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=IWM">IWM</a> from our <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-41994&scode=021551">January recommendation</a> . I adjusted the stops last week but will be watching any rally this week closely. If there are signs of a rally failure, I will likely take profits. If so, I will let you know via my <a href="https://twitter.com/TomAspray">Twitter feed</a>.</p> <p><a href="http://www.forbes.com/sites/tomaspray/2015/03/06/the-week-ahead-does-your-portfolio-need-adjusting/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-74313179954759961802015-03-08T21:19:00.001+01:002015-03-08T21:19:37.987+01:00Weekend update<p>by Tony Caldaro</p> <p>REVIEW</p> <p>The market started the week at SPX 2105. After a rally to SPX 2118 on Monday the market had gap down openings three of the next four trading days. By late Friday the SPX had traded down to 2067, then ended the week at 2071. For the week the SPX/DOW were -1.55%, the NDX/NAZ were -0.80%, and the DJ World index lost 1.70%. Economic reports for the week were slightly biased to the negative again. On the uptick: personal income, the PCE, auto sales, ISM services, payrolls, plus the unemployment rate and trade deficit improved. On the downtick: personal spending, ISM manufacturing, construction spending, the ADP, factory orders, consumer credit, the WLEI, the monetary base, plus weekly jobless claims rose. Next week we get reports on Retail sales, the PPI and Consumer sentiment.</p> <p>LONG TERM: bull market</p> <p>We continue to count this six year Cycle wave [1] bull market unfolding in five Primary waves. Primary waves I and II occurred in 2011 and Primary wave III has been underway since then. While Primary I was a relatively simple two year advance of five Major waves, with only a subdividing Major wave 1. Primary III has already entered its fourth year, with an extensively subdivided Major wave 3 after a simple Major wave 1. Since we are expecting Primary III to continue into the year 2016, we are expecting Major wave 5 to subdivide as well.</p> <p><a href="https://caldaro.files.wordpress.com/2015/03/spxweekly.png"><img alt="SPXweekly" src="https://caldaro.files.wordpress.com/2015/03/spxweekly.png?w=640&h=485" width="640" height="485" /></a></p> <p>We recently posted price and time targets for Primary III: SPX 2530-2630 by Q1/Q2 2016. As you will note in the weekly chart above, Primary III has spent most of its time trading around the mid-point of the rising channel from 2011. When it tops we would expect it to hit the upper trend line. Then after a serious correction for Primary IV, we would expect Primary V to take the market to all time new highs in 2017.</p> <p>MEDIUM TERM: uptrend</p> <p>The uptrend that started the first day of February at SPX 1981 ran into some profit taking this week, as the market experienced its biggest decline since the uptrend began. Last weekend we had noted four potential short term counts into the SPX 2120 high. Two counts suggested the uptrend was subdividing into waves of a lesser degree. Two counts suggested a five wave advance, from SPX 1981, had completed and a pullback/correction would be next.</p> <p><a href="https://caldaro.files.wordpress.com/2015/03/spxdaily.png"><img alt="SPXdaily" src="https://caldaro.files.wordpress.com/2015/03/spxdaily.png?w=640&h=485" width="640" height="485" /></a></p> <p>On Monday the market held SPX 2104 and rallied to nearly a new high at 2118. This kept all four counts alive. On Tuesday, however, the market dropped below SPX 2104 eliminating one of the subdividing counts. Then on Friday the market broke below SPX 2072 eliminating the other subdividing count. As a result we are left with a completed five wave pattern from SPX 1981 to 2120, and a pullback/correction underway. The five waves were previously noted: 2072-2042-2102-2085-2120.</p> <p>With the five wave pattern we now have two possibilities. Either the SPX 2120 high completed the uptrend, or it is just Minor wave 1 of the uptrend. After reviewing the RSI on the weekly chart we arrived at the conclusion that the recent five wave advance is only Minor wave 1 of the uptrend. If it was the entire advance it would be the weakest impulsive wave, non B-wave, of the entire bull market. It looks similar to the beginning of Major 3 of Primary I, and the beginning of Minor 3 of Primary III. Both had small advances to start their uptrends, pulled back without ever reaching overbought, then resumed their uptrends. We will go with this count and discuss it in the section below. Medium term support is at the 2070 and 2019 pivots, with resistance at the 2085 and 2131 pivots.</p> <p>SHORT TERM</p> <p>As noted above we had a five wave advance from SPX 1981 to 2120: 2072-2042-2102-2085-2120. For now we are going to label this advance Minor wave 1, of a five Minor wave Intermediate one uptrend, with Minor 2 currently underway. Since the fifth wave of the advance was the weakest, wave structure support, for Minor 2, should arrive between SPX 2042 and 2072. Also there are three possible Fibonacci levels for the pullback: 38.2% (2067), 50% (2051) and 61.8% (2034). The SPX 2067 level is the actual low of the pullback thus far. Since the 2051 and 2067 levels fall in between the 2042-2072 range, we would expect one of these two to provide Minor 2 support.</p> <p><a href="https://caldaro.files.wordpress.com/2015/03/spxhourly.png"><img alt="SPXhourly" src="https://caldaro.files.wordpress.com/2015/03/spxhourly.png?w=640&h=485" width="640" height="485" /></a></p> <p>In order to consider this advance a completed uptrend, this pullback/correction will have to drop below the OEW 2019 pivot. Until that occurs we will continue to expect this uptrend to resume once this pullback ends. Short term support is at SPX 2051 and the 2070 pivot, with resistance at the 2085 pivot and SPX 2120. Short term momentum ended the week extremely oversold.</p> <p><a href="https://caldaro.wordpress.com/2015/03/07/weekend-update-490/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-84536704492369609582015-03-08T21:17:00.001+01:002015-03-08T21:17:24.918+01:00What Happened 12 Of The last 13 Times Jobs And Stocks Were Here?<p>by Dana Lyons' Tumblr</p> <p><a href="http://jlfmi.tumblr.com/image/112899057330"><img alt="Unemployment Hits 6-Year Low; Bad News For Stocks?OK, before we get a barrage of hate mail, no, we do not think the drop in the unemployment rate is bad news. And no, we are not among the cadre of folks who &#8212; whether due to perma-bear status or simply a grumpy disposition &#8212; are always looking for the dark cloud in everything. We are simply intrigued by the quantitative aspects of the financial markets. And today&#8217;s Chart Of The Day reveals an intriguing piece of quantitative data:Since 1969, when the U.S. U3 unemployment rate has hit a 6-year low while the stock market (as measured by the broad, equally-weighted Value Line Geometric Composite) is at a 12-month high, the market has been lower 1 year later 12 out of 13 times by a median -14.8%.Again, do we think the drop in the unemployment rate is a bad thing? No. Do we think 6-year lows in the past have caused stock market corrections? No. Truth be told, it is probably just &#8220;one of those things&#8221;. However, there are likely a few messages worth considering here.First, the historical market weakness following coincident 6-year lows in the unemployment rate and 12-month highs in the equity market probably speaks to the location in their respective cycles. That is, rather than the notion that the U3 being at a low or the Value Line being at a high is a negative, the combination has historically occurred toward the end of an economic expansion and bull market cycle. Despite the weak nature of the post-2009 recovery, 6 years into an economic expansion is a pretty long way, historically speaking. And while the condition of the stock market being at a 12-month high is not by itself a negative, occurring 6 years into an expansion suggests some vulnerability to corrective action.Second, bull markets do not end amidst bad news. Rather, they end when stocks fail to advance on good news. This chart is indicative of that. Flash back to the periods marked on the chart (e.g., 1969, 1987, 1989, 1998, 2007) and you will find mostly positive sentiment among consumers and investors. We are not foolish enough to make predictions about a top here in the equity market. Even if this were a genuine concern, rallies have at times persisted for several more months in the past before peaking. However, the sentiment situation, at least in the market, is certainly consistent with those prior periods of either complacency or downright euphoria. This again is probably just one of those interesting market data quirks. The phrase &#8220;correlation does not imply causation&#8221; certainly applies here. However, we would not totally dismiss the potential message regarding the current proximity of the market cycle. And while the good news of low unemployment and high equity prices has brought understandable good cheer, that is always the case at the peak.Just sayin.________More from Dana Lyons, JLFMI and My401kPro.The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments." src="http://40.media.tumblr.com/176dc97c937633a4b33b7d3ec13581ba/tumblr_nkt1xwxXzP1smq3o4o1_1280.jpg" width="680" height="438" /> </a></p> <p><b>Unemployment Hits 6-Year Low; Bad News For Stocks?</b></p> <p>OK, before we get a barrage of hate mail, no, we do not think the drop in the unemployment rate is bad news. And no, we are not among the cadre of folks who — whether due to perma-bear status or simply a grumpy disposition — are always looking for the dark cloud in everything. We are simply intrigued by the quantitative aspects of the financial markets. And today’s Chart Of The Day reveals an intriguing piece of quantitative data:</p> <p><i><b>Since 1969, when the U.S. U3 unemployment rate has hit a 6-year low while the stock market (as measured by the broad, equally-weighted Value Line Geometric Composite) is at a 12-month high, the market has been lower 1 year later 12 out of 13 times by a median -14.8%.</b></i></p> <p>Again, do we think the drop in the unemployment rate is a bad thing? No. Do we think 6-year lows in the past have caused stock market corrections? No. Truth be told, it is probably just “one of those things”. However, there are likely a few messages worth considering here.</p> <p>First, the historical market weakness following coincident 6-year lows in the unemployment rate and 12-month highs in the equity market probably speaks to the location in their respective cycles. That is, rather than the notion that the U3 being at a low or the Value Line being at a high is a negative, the combination has historically occurred toward the end of an economic expansion and bull market cycle. Despite the weak nature of the post-2009 recovery, 6 years into an economic expansion is a pretty long way, historically speaking. And while the condition of the stock market being at a 12-month high is not by itself a negative, occurring 6 years into an expansion suggests some vulnerability to corrective action.</p> <p>Second, bull markets do not end amidst bad news. Rather, they end when stocks fail to advance on good news. This chart is indicative of that. Flash back to the periods marked on the chart (e.g., 1969, 1987, 1989, 1998, 2007) and you will find mostly positive sentiment among consumers and investors. We are not foolish enough to make predictions about a top here in the equity market. Even if this were a genuine concern, rallies have at times persisted for several more months in the past before peaking. However, the sentiment situation, at least in the market, is certainly consistent with those prior periods of either complacency or downright euphoria. </p> <p>This again is probably just one of those interesting market data quirks. The phrase “correlation does not imply causation” certainly applies here. However, we would not totally dismiss the potential message regarding the current proximity of the market cycle. And while the good news of low unemployment and high equity prices has brought understandable good cheer, that is always the case at the peak.</p> <p><a href="http://jlfmi.tumblr.com/post/112899057330/unemployment-hits-6-year-low-bad-news-for-stocks">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-68752507753917528702015-03-07T17:46:00.001+01:002015-03-07T17:46:32.110+01:00SPY Trends and Influencers March 7, 2015<p>by <strong><a href="http://dragonflycap.com/author/admin/">Greg Harmon</a></strong></p> <p>Last week’s review of the <a href="http://dragonflycap.com/?p=52784">macro market indicators</a> suggested, heading into March the strength that was anticipated to close February did not appear, but weakness did not show up either. </p> <p>Elsewhere looked for Gold (<a href="http://stocktwits.com/symbol/GLD">$GLD</a>) to continue the short term bounce higher while Crude Oil (<a href="http://stocktwits.com/symbol/USO">$USO</a>) churned in the consolidation of the downward move. The US Dollar Index (<a href="http://stocktwits.com/symbol/UUP">$UUP</a>) seemed ready to move higher again while US Treasuries (<a href="http://stocktwits.com/symbol/TLT">$TLT</a>) were biased higher short term in the pullback. The Shanghai Composite (<a href="http://stocktwits.com/symbol/ASHR">$ASHR</a>) was on the cusp of another leg higher and Emerging Markets (<a href="http://stocktwits.com/symbol/EEM">$EEM</a>) were stalled at resistance but not showing any bias. </p> <p>Volatility (<a href="http://stocktwits.com/symbol/VXX">$VXX</a>) looked to remain subdued and possibly drifting lower keeping the bias higher for the equity index ETF’s <a href="http://stocktwits.com/symbol/SPY">$SPY</a>, <a href="http://stocktwits.com/symbol/IWM">$IWM</a> and <a href="http://stocktwits.com/symbol/QQQ">$QQQ</a>. Their charts were not as strong with consolidation or a pullback looking more likely in them, especially the SPY with the IWM next and QQQ strongest, holding level. </p> <p>The week played out with the Gold bounce lasting a nanosecond before reversing lower while Crude Oil continued in the consolidation range. The US Dollar broke out of consolidation higher while Treasuries broke lower and just kept going. The Shanghai Composite found resistance and pulled back while Emerging Markets followed everything else lower. </p> <p>Volatility tested last week’s low before rebounding higher. The Equity Index ETF’s started the week drifting with a downward edge, but accelerated after the Non-farm payroll report Friday, closing near the lows. What does this mean for the coming week? Lets look at some charts.</p> <p><strong>SPY Daily, <a href="http://stocktwits.com/symbol/SPY">$SPY</a></strong> <br /><a href="http://dragonflycap.com/2015/03/06/macro-week-reviewpreview-march-6-2015/spy-d-235/"><img alt="spy d" src="http://dragonflycap.com/wp-content/uploads/2015/03/spy-d2-600x450.png" width="600" height="450" /></a></p> <p>The SPY started the week to the upside, testing the 212 area and in consolidation. But it did not take long for the price to break to the downside. The 20 day SMA acted as support for a couple of days but then Friday saw a big push lower. The range of the long red candle had not been seen for two weeks. It ended the week below the December high but over the January high of the prior consolidation range. The daily chart shows the RSI pulling back along with the price pullback from the rising trend resistance and the MACD crossed down and falling. These all bode for more downside. </p> <p>On the weekly chart the price moved back into the consolidation zone that started in October. The RSI on this timeframe is falling but bullish and the MACD about to cross down. Also a downside bias. Notice on both timeframes that the Bollinger Bands® are tightening, often a precursor to a bigger move. There is support lower at 206.40 and 204.30 followed by 203 and 202.30 before 200 and 198.60. Resistance higher stands at 209 and 210.25 followed by 212.25. <strong>Continued Pullback in the Uptrend.</strong></p> <p><strong>SPY Weekly, <a href="http://stocktwits.com/symbol/SPY">$SPY</a></strong> <br /><a href="http://dragonflycap.com/2015/03/06/macro-week-reviewpreview-march-6-2015/spy-w-243/"><img alt="spy w" src="http://dragonflycap.com/wp-content/uploads/2015/03/spy-w-600x450.png" width="600" height="450" /></a></p> <p>Heading into next week the equity markets look vulnerable. Elsewhere look for Gold to continue lower while Crude Oil churns in a consolidation zone. The US Dollar Index looks to continue higher while US Treasuries continue lower. The Shanghai Composite looks to continue its broad consolidation with a short term downside bias and Emerging Markets are biased to the downside. </p> <p>Volatility looks to remain low keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts look better to the downside though with the SPY the weakest and the IWM and QQQ a bit stronger on the longer timeframe. Use this information as you prepare for the coming week and trad’em well.</p> <p><a href="http://dragonflycap.com/2015/03/07/spy-trends-influencers-march-7-2015/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-60843061753974290012015-03-02T12:04:00.001+01:002015-03-02T12:04:11.067+01:00Weekend update<p>by Tony Caldaro</p> <p>REVIEW</p> <p>The week started off at SPX 2110. Then after dipping to SPX 2103 Monday morning the market rallied to new highs at 2120 by Wednesday. After that it spent the next two days within that range. For the week the SPX/DOW were -0.1%, the NDX/NAZ were mixed, and the DJ World index was +0.3%. On the economic front negative reports continued to outpace positive ones. On the uptick: Case-Shiller, durable goods, the FHFA, consumer sentiment, and pending homes sales. On the downtick: existing home sales, consumer confidence, the CPI, the Chicago PMI, Q2 GDP, the WLEI and weekly jobless claims rose. Next week’s reports are highlighted by monthly Payrolls, the FED’s beige book and the PCE.</p> <p>LONG TERM: bull market</p> <p>The five primary wave Cycle [1] bull market from March 2009 continues. Primary waves I and II completed in 2011, and Primary wave III has been underway since then. During the entire 130 year recorded history of the US stock market there has only been five bull markets that have lasted five calendar years or more: 1921-1929, 1932-1937, 1987-2000, 2002-2007 and 2009-2015 so far. Of these five, three have been the last three bull markets and the current one is the third longest in history. During each of these five bull markets each of the three rising waves unfolded in 1, 2, 3, 5 or 8 years. These are all Fibonacci numbers. The longest one for example had rising waves of 3, 8 and 2 years. As a result of this analysis, and the new highs posted this year, we are expecting Primary III to top around Q1/Q2 of 2016. When applying several mathematical relations we arrived, as posted last week, with a target of SPX 2530-2630 for Primary III. Then after a steep Primary IV correction we are expecting the bull market to top in 2017, completing an eight year long term uptrend. Fundamentally, the ECBs EQE, scheduled to start in March, supports this scenario.</p> <p><a href="https://caldaro.files.wordpress.com/2015/02/spxweekly3.png"><img alt="SPXweekly" src="https://caldaro.files.wordpress.com/2015/02/spxweekly3.png?w=640&h=485" width="640" height="485" /></a></p> <p>We have labeled Primary III with Major waves 1 and 2 in late 2011, then Major waves 3 and 4 in late-2014 and early-2015. The current uptrend, which started in early -February, should be the beginning of Major wave 5. Since we are not expecting Major wave 5 to complete until next year, we are labeling this uptrend as Intermediate wave i. After it concludes we still should have at least four more trends, Intermediate waves ii thru v, before Major wave 5 completes. Since this uptrend is only one month old, and has not reached an overbought condition on the weekly RSI, we are expecting it continue higher.</p> <p>MEDIUM TERM: uptrend</p> <p>After a somewhat complex Major wave 4, Major wave 5 began on the first trading day of February. From the downtrend low of SPX 1981 the market has risen about 7% during this month. Currently we see five waves up from that low, with each rising wave shorter than the previous wave: 2072-2042-2102-2085-2120. This is a bit unusual for a potential completed wave pattern, since the third wave is usually the longest. However, it is acceptable since the fifth wave is the shortest wave.</p> <p><a href="https://caldaro.files.wordpress.com/2015/02/spxdaily5.png"><img alt="SPXdaily" src="https://caldaro.files.wordpress.com/2015/02/spxdaily5.png?w=640&h=485" width="640" height="485" /></a></p> <p>The easiest way to count this pattern is either: 1. a completed uptrend, or 2. a completed wave 1 of the uptrend. In both of these cases the SPX would have to drop below 2085 to consider either of these two counts valid. Since we are expecting the uptrend to continue higher, #2 would then be the best option. Another way to count this pattern would be a series of subdividing waves. More on this below. Medium term support is at the 2085 and 2070 pivots, with resistance at the 2131 and 2198 pivots.</p> <p>SHORT TERM</p> <p>If we were to consider this uptrend currently in a series of subdividing waves, then the easiest count would be a 1-2, i-ii, 1-2. But this seems a bit stretched since this uptrend has already risen about 140 points from its low. The count we do prefer is the one posted on the chart below. This suggests Minor waves 1 and 2 completed at SPX 2072 and 2042. Then Minor wave 3 has subdivided into four Minute waves thus far: 2102-2085-2120-2104. With this count, and the somewhat lethargic market action lately, we would expect Minor 3 to top around the OEW 2131 pivot. This count also offers several interesting wave/price relationships.</p> <p><a href="https://caldaro.files.wordpress.com/2015/02/spxhourly3.png"><img alt="SPXhourly" src="https://caldaro.files.wordpress.com/2015/02/spxhourly3.png?w=640&h=485" width="640" height="485" /></a></p> <p>With Minute i 60 points, (2042-2102), and Minute iii only 35 points, (2085-2120), the maximum Minute v could reach is also 35 points, (2104-2139). Wave five can not be longer than wave three, when wave three is shorter than wave one. Should it exceed SPX 2139 then the triple subdivision noted above would be in play. Should it end around the 2131 pivot then another wave/price relationship comes into play. Minor wave 1 rose 91 points (1981-2072). In order for Minor 3 to equal, or better, Minor 1 it has to reach at least SPX 2133, (2042-2033 or 91 points). Should it reach SPX 2133 or better, then Minor 5 can be any length. If not, Minor 5 will be limited to the length of Minor 3 or less. Should it be less this uptrend will not make it to the OEW 2198 pivot. If more, then the 2198 pivot an even higher is obtainable before any sizeable correction.</p> <p>While this all may seem quite complicated we will try to summarize with some defined levels. If the SPX drops below 2085 we will have five waves up from the 1981 low, suggesting either the uptrend completed, or more likely, only the first wave up of the uptrend completed. If/when the SPX rises above 2120 then Minor wave 3 continues. The rest we will deal with on a day to day basis as this market unfolds. Short term support is at SPX 2104 and the 2085 pivot, with resistance at SPX 2120 and the 2131 pivot. Short term momentum ended the week oversold.</p> <p><a href="https://caldaro.wordpress.com/2015/02/28/weekend-update-489/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-88928515487227232762015-03-01T14:12:00.001+01:002015-03-01T14:12:01.071+01:00Weighing the Week Ahead: Will the Economic News Alter Fed Policy?<p>by <a href="http://dashofinsight.com/author/oldprof/">oldprof</a></p> <p>The economic calendar includes an avalanche of important data. The daily economic news, culminating in the jobs report on Friday, will dominate the market discussion this week. The popularity of parsing everything through the lens of Fed policy creates a special situation. Pundits will ask:</p> <p><strong><em>Will the economic data alter Fed policy? </em></strong></p> <p><strong>Prior Theme Recap <br /></strong></p> <p>In last week’s WTWA <a href="http://dashofinsight.com/weighing-the-week-ahead-help-for-the-economy-from-housing/">I predicted</a> that the punditry would focus on housing data and economic impacts with a brief diversion for the Yellen testimony. That was as good call, since the housing debate bracketed the testimony and still followed our themes at week’s end, especially on CNBC programming. Josh Brown’s excellent article, <a href="http://fortune.com/2015/02/27/10-reasons-the-housing-market-could-go-ballistic-this-spring/"><em>10 reasons the housing market could go ballistic this spring</em></a><em>, </em>captures the spirit of the discussion. Regular readers know that I have long recommended viewing pent-up demand (reason #2) along with shadow inventory. All ten reasons are interesting.</p> <p>Feel free to join in my exercise in thinking about the upcoming theme. We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead.</p> <p><strong>This Week’s Theme <br /></strong></p> <p>The upcoming week is loaded with interesting data, more than we often see in two weeks and including the most important reports. With Fed Chair Yellen’s testimony fresh in our minds, it will be natural to combine questions about the Fed with interpretation of the data.</p> <p><strong><em>Will the Economic Data Alter the Fed’s plan? </em></strong></p> <p><strong>The Viewpoints </strong></p> <p>Here are the key viewpoints on the economy and Fed policy:</p> <ul> <li>The Fed is on course to raise interest rates this year. <a href="http://www.bloomberg.com/news/videos/2015-02-24/yellen-signals-fed-flexibility-on-rate-timing">Vice-Chair Fischer suggests</a> that the current balance sheet effect, without any more buying, is 110 bps on the ten-year yield. This leaves room to normalize rates. </li> <li>The Fed will remain data dependent, with a possible delay until next year (<a href="http://www.bloomberg.com/news/videos/2015-02-24/yellen-signals-fed-flexibility-on-rate-timing">Bloomberg</a>). </li> <li>The Fed will be forced to initiate more QE. (Critics fearing deflation). </li> <li>The Fed has undermined all data. It is hopelessly “behind the curve” from a failure to raise rates earlier. (Critics fearing hyperinflation).</li> </ul> <p>Critics of all flavors were represented during Chair Yellen’s Congressional testimony. The same economic data will be viewed quite differently depending upon the viewing lens. Bob Dieli emphasizes the inflation test as especially important and provides an interesting chart to consider the timing of the first rate hike:</p> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/03/Dieli-on-Fed.png"><img alt="Dieli on Fed" src="http://dashofinsight.com/wp-content/uploads/2015/03/Dieli-on-Fed.png" width="600" height="395" /></a></p> <p>As always, I have some additional ideas in today’s conclusion. But first, let us do our regular update of the last week’s news and data. Readers, especially those new to this series, will benefit from reading the <a href="http://dashofinsight.com/background-on-weighing-the-week-ahead/">background information</a>.</p> <p><strong>Last Week’s Data</strong></p> <p>Each week I break down events into good and bad. Often there is “ugly” and on rare occasion something really good. My working definition of “good” has two components:</p> <ol> <li>The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially – no politics. </li> <li>It is better than expectations.</li> </ol> <p><strong>The Good</strong></p> <p>There was some good news last week.</p> <ul> <li><strong><em>Progress in Greece</em></strong>. The four-month delay was agreed upon. </li> <li><strong><em>Inflation is still subdued</em></strong>. And no, it is not a deflationary threat, <a href="http://www.ftportfolios.com/Blogs/EconBlog/2015/2/26/the-consumer-price-index-declined-0.7percent-in-january">explains Brian Wesbury</a>. </li> <li><strong><em>Weekly jobless claims dipped. </em></strong>Back below 300K. Calculated Risk <a href="http://www.calculatedriskblog.com/2015/02/weekly-initial-unemployment-claims_19.html">analyzes</a> and charts the significance. </li> <li><strong><em>Q4 GDP </em></strong>was revised lower, but beat expectations at 2.2%. While the market sold off later in the day, this did not seem to be a major factor. Some were encouraged at the reasons for the revisions, including a lower inventory effect. Doug Short has <a href="http://www.advisorperspectives.com/dshort/updates/GDP-Components.php?referrer=feed43.com">the best summary</a> of the effect of each component:</li> </ul> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/03/dshort-gdp.png"><img alt="dshort gdp" src="http://dashofinsight.com/wp-content/uploads/2015/03/dshort-gdp.png" width="600" height="437" /></a></p> <ul> <li><strong><em>Durable goods orders </em></strong>beat expectations. <a href="http://econintersect.com/pages/releases/release.php?post=201502264707">Steven Hansen at GEI</a> has a complete analysis, including a longer trend and some caveats. </li> <li><strong><em>Earnings reports strengthened. </em></strong>The blended growth rate is 3.7%. Companies beating estimates are seeing solid stock price increases. (<a href="http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_2.27.15">FactSet</a>). <a href="http://fundamentalis.com/?p=4575">Brian Gilmartin</a> is pretty optimistic about the picture for 2015 focusing on increases in the bottom-up estimates. </li> <li><strong><em>The chemical activity index.</em></strong> We always appreciate updates from “Davidson” <a href="http://www.valueplays.net/2015/02/24/chemical-activity-indicating-further-expansion/">via Todd Sullivan</a>. The correlation suggests “a rise in equity prices for the next 12 months or so.”</li> </ul> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/03/Screen-Shot-2015-02-24-at-10.11.45-PM-622x420.png"><img alt="Screen-Shot-2015-02-24-at-10.11.45-PM-622x420" src="http://dashofinsight.com/wp-content/uploads/2015/03/Screen-Shot-2015-02-24-at-10.11.45-PM-622x420.png" width="600" height="405" /></a></p> <ul> <li><strong><em>Michigan sentiment rebounded</em></strong> to 95.4. This is slightly off the recent high, but still very strong. </li> <li><strong><em>Pending home sales</em></strong> hit 18 month highs. (<a href="http://www.calculatedriskblog.com/2015/02/nar-pending-home-sales-index-increased.html">Calculated Risk</a>) This is a forward looking indicator, but Bill remains concerned about NAR sales estimates. He has an <a href="http://www.calculatedriskblog.com/2015/02/lawler-on-pending-home-sales-nar-fixes.html">update</a> noting major revisions in seasonal adjustments for the West region.</li> </ul> <p><strong>The Bad</strong></p> <p>There was also some discouraging economic news.</p> <ul> <li><strong><em>Fund managers are bullish</em></strong>. This is negative on a contrarian basis (<a href="http://shortsideoflong.com/2015/02/fund-managers-are-very-bullish/">The Short Side of Long</a>). Contra from <a href="http://thefatpitch.tumblr.com/post/111890953881/dont-fear-the-financial-blogger-bulls">The Fat Pitch</a>, tracking financial bloggers. Both sources have interesting charts, so make up your own mind. I am scoring this with the standard contrarian interpretation. </li> <li><strong><em>Jobless claims</em></strong> rose dramatically to 313K, the most since December, 2013. This is an important series, but difficult to track with moving holidays like President’s Day. (<a href="http://www.bloomberg.com/news/articles/2015-02-26/jobless-claims-in-u-s-rose-last-week-to-313-000">Bloomberg</a>) </li> <li><strong><em>Ukraine cease fire</em></strong> is in jeopardy, hanging by a “hair trigger.” (<a href="http://edition.cnn.com/videos/world/2015/02/28/pkg-magnay-ukraine-donetsk-still-deadly.cnn">CNN</a>) This is a continuing human tragedy and a major drag on the world economy. </li> <li><strong><em>Existing home sales</em></strong> disappointed, the lowest level since May, 2014. <a href="http://www.mesirowfinancial.com/blog/economics/2015/02/23/dnice/existing-home-sales-below-expectations/">Mesirow Financial observes</a> that the best investment properties have traded and the baton must now be passed to first-time buyers – a crucial shift. Other observers blame low inventory (<a href="http://blogs.wsj.com/economics/2015/02/24/new-home-sales-are-surging-why-arent-existing-homes-as-hot/">WSJ</a>).</li> </ul> <p><strong>The Ugly </strong></p> <p>Congress is back in action! Or inaction. With minutes to spare before funding would end for the Department of Homeland Security, Congress managed a one-week funding extension. This means that we get to watch the entire story again next week. Groundhog Day was a month ago. Even Greece and the Germans managed a four-month extension.</p> <p>And following up from a prior “Ugly” the <a href="http://www.reuters.com/article/2015/02/27/us-usa-chicago-swaps-idUSKBN0LV26020150227?feedType=nl&feedName=usdai">Chicago financial situation</a> gets worse.</p> <p><strong>The Silver Bullet</strong></p> <p>I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause, doing the real work to demonstrate the facts.  Think of The Lone Ranger.</p> <p>This week’s award goes to <a href="http://www.convergex.com/the-share/mr.-gundlach-a-word-please">Nicholas Cola and Jessica Rabe</a> of Convergex. Cola takes on the oft-cited Jeff Gundlach slide deck on the 2015 outlook. Gundlach states that equities have never risen for seven years in a row since 1871. The Convergex analysis, while quite deferential, demonstrates that Gundlach is inaccurate in several respects. The points are all nicely documented and <a href="http://www.convergex.com/uploads/Morning_Review_-_2015_2_26.pdf">charted in a supplement</a>. The conclusion is that several more years of rally would not be a surprise.</p> <p>(Note more discussion of bull markets and old age in today’s final thought).</p> <p><strong>Quant Corner <br /></strong></p> <p>Whether a trader or an investor, you need to understand risk. I monitor many quantitative reports and highlight the best methods in this weekly update. For more information on each source, <a href="http://dashofinsight.com/wtwa-indicator-snapshot/">check here</a>.</p> <p><img alt="" src="http://oldprof.typepad.com/.a/6a00d83451ddb269e201bb07fa6ade970d-pi" /></p> <p><strong><em>Recent Expert Commentary on Recession Odds and Market Trends <br /></em></strong></p> <p><a href="http://recessionalert.com/our-service/">RecessionAlert</a>: A variety of strong quantitative indicators for both economic and market analysis. While we feature the recession analysis, Dwaine also has a number of interesting market indicators. This week he notes an <a href="http://recessionalert.com/stresses-are-building-up-in-the-system/">increase in his combined measure of economic stress</a>, although the levels are still not yet worrisome.</p> <p><a href="http://advisorperspectives.com/dshort/updates/ECRI-Weekly-Leading-Index.php">Doug Short</a>: An update of the regular ECRI analysis with a good history, commentary, detailed analysis and charts. If you are still listening to the ECRI (three years after their recession call), you should be reading this carefully. Doug has the latest interviews as well as discussion. Also see Doug’s <a href="http://www.advisorperspectives.com/dshort/updates/Big-Four-Economic-Indicators.php">Big Four</a> summary of key indicators.</p> <p><a href="http://imarketsignals.com/">Georg Vrba</a>: has developed an array of interesting systems. Check out his site for the full story. We especially like his <a href="http://imarketsignals.com/unemployment-rate-and-recessions/">unemployment rate recession indicator</a>, confirming that there is no recession signal. Georg continues to develop new tools for market analysis and timing, including a <a href="http://imarketsignals.com/2015/spy-ief-market-timer/">combination of models to do gradual shifting</a> to and from the S&P 500. I am following his results and methods with great interest. You should, too.</p> <p>Bob Dieli does a <a href="https://www.nospinforecast.com/">monthly update</a> (subscription required) after the employment report and also a monthly overview analysis. He follows many concurrent indicators to supplement our featured “C Score.”</p> <p>This week’s report is chock full of insights and ideas. Here is Bob’s take on last week’s theme, housing:</p> <p><img alt="" src="http://oldprof.typepad.com/.a/6a00d83451ddb269e201b7c756a04e970b-pi" /></p> <p>James Picerno, a leading business cycle expert, <a href="http://www.capitalspectator.com/the-popular-but-risky-habit-of-cherry-picking-economic-data-for-business-cycle-analysis/">warns against relying</a> on too few “cherry-picked” indicators. He cites a statement that the housing recovery is faltering. His thoughtful article has several great examples, leading him to conclude as follows:</p> <blockquote> <p>On that note, recession risk is still quite low, based on a broad review of the published numbers. Yes, the housing market may be an early sign of trouble; ditto the weak trend in commodity prices. But there are many positives one could point to as well. But it’s ridiculous to get into a tit-for-tat debate–my indicators are better than yours! The emphasis should be on developing superior multi-factor business cycle benchmarks. Fortunately, there’s no shortage of efforts on this crucial work. The bad news is that you’re not likely to read about it unless you’re looking beyond the usual suspects.</p> </blockquote> <p>Sad, but true. The story that “all is well” does not get much attention.</p> <p><strong>The Week Ahead</strong></p> <p>It will be a big week for economic data.</p> <p>The “A List” includes the following:</p> <ul> <li>Employment report (F). The most watched economic indicator, despite the wide error band and revisions. </li> <li>ISM Index (M). Important concurrent economic read with some leading qualities. </li> <li>Personal income and spending (M). Will the bonus from lower gas prices show up? </li> <li>PCE prices (M). Favorite Fed inflation indicator. </li> <li>Auto sales (T). Good non-government verification of spending. Weather effects last month? </li> <li>Initial jobless claims (Th). The best concurrent news on employment trends, with emphasis on job losses. </li> <li>ADP private employment (W). Deserved recognition as a solid independent measurement of job growth.</li> </ul> <p>The “B List” includes the following:</p> <ul> <li>ISM services index (W). Less history than the manufacturing index, but now covering more of the economy. </li> <li>Beige book (W). Anecdotal economic evidence that the FOMC will use at the next meeting. If you are a veteran of the Art Cashin era you may call this the “tan book.” </li> <li>Trade balance (F). Impact of oil prices should be evident. </li> <li>Construction spending (M). January data, but an important growth measure. </li> <li>Factory orders (Th). January data for this volatile series. </li> <li>Crude oil inventories (W). Maintains recent interest and importance.</li> </ul> <p>There is not much FedSpeak, but plenty on the international affairs front.</p> <p><strong>How to Use the Weekly Data Updates </strong></p> <p>In the WTWA series I try to share what I am thinking as I prepare for the coming week. I write each post as if I were speaking directly to one of my clients. Each client is different, so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs. It is not a “one size fits all” approach.</p> <p>To get the maximum benefit from my updates you need to have a self-assessment of your objectives. Are you most interested in preserving wealth? Or like most of us, do you still need to create wealth? How much risk is right for your temperament and circumstances?</p> <p>My weekly insights often suggest a different course of action depending upon your objectives and time frames. They also accurately describe what I am doing in the programs I manage.</p> <p><em><strong>Insight for Traders</strong> </em></p> <p>Felix has continued a “bullish” posture for the three-week market forecast. The data have improved a bit, but are only slight better than the recent neutral readings. There is reduced uncertainty, reflected by the falling percentage of sectors in the penalty box. Our current position is still fully invested in three leading sectors, and we remain aggressive. For more information, I have posted a further description — <a href="http://dashofinsight.com/felix-oscar/"><em>Meet Felix and Oscar</em></a>. You can sign up for Felix’s weekly ratings updates via email to etf at newarc dot com.</p> <p>This week’s special advice for traders comes from two of my favorite sources: <a href="http://traderfeed.blogspot.com/2015/02/best-practices-in-trading-power-of.html">Brett Steenbarger citing Charles Kirk</a>. The basic idea is the importance of not overfitting your trading models. The important technique is to resist temptation to add many variables for slight theoretical improvements in performance. My partner Vince calls this “pruning.” It is the key to what he calls a “robust” model. When you are looking at a new trading system it is one of the key things to consider. Less is more.</p> <p>As I have noted for seven weeks, Felix continues to feature selected energy holdings. The focus has shifted from refiners, to producers, to natural gas during this time. Solar stocks have also earned a high rating.</p> <p><strong><em>Insight for Investors </em></strong></p> <p>I review the themes here each week and refresh when needed. For investors, as we would expect, the key ideas may stay on the list longer than the updates for traders. Major market declines occur after business cycle peaks, sparked by severely declining earnings. Our methods are focused on limiting this risk. Start with our <a href="http://dashofinsight.com/tips-for-individual-investors/">Tips for Individual Investors</a> and follow the links.</p> <p>We also have a new page summarizing many of the <a href="http://dashofinsight.com/investor-fears/">current investor fears</a>. If you read something scary, this is a good place to do some fact checking.</p> <p>My bold and contrarian prediction for 2015 – that the leading sectors would lose and the laggards would win – still looks promising. I also see plenty of time left in this economic and stock cycle.</p> <p><strong><em>Other Advice </em></strong></p> <p>Here is our collection of great investor advice for this week:</p> <p><strong>Personal Finance </strong></p> <p>The <a href="http://www.berkshirehathaway.com/letters/2014ltr.pdf">annual Berkshire Hathaway letter</a> is a must-read for investors. If you cannot spare the time to read all 42 pages, see pp. 18-19 for an explanation about why to prefer stocks to bonds in the long run. The risk often comes from our own behavior:</p> <blockquote> <p>Investors, of course, can,by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has</p> </blockquote> <blockquote> <p>No place in the investor’s tool kit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.</p> </blockquote> <p>And also see page 34-35. Mr. Buffett advises at least a five-year time horizon for those buying his stock. He also explains the reason for keeping adequate cash reserves (counting Treasuries):</p> <blockquote> <p>The reason for our conservatism, which may impress some people as extreme, is that it is entirely predictable that people will occasionally panic, but not at all predictable when this will happen. Though practically all days are relatively uneventful, tomorrow is always uncertain. (I felt no special apprehension on December 6, 1941 or September 10, 2001.) And if you can’t predict what tomorrow will bring, you must be prepared for whatever it does.</p> </blockquote> <blockquote> <p>A CEO who is 64 and plans to retire at 65 may have his own special calculus in evaluating risks that have only a tiny chance of happening in a given year. He may, in fact, be “right” 99% of the time. Those odds, however, hold no appeal for us. We will never play financial Russian roulette with the funds you’ve entrusted to us, even if the metaphorical gun has 100 chambers and only one bullet. In our view, it is madness to risk losing what you need in pursuing what you simply desire.</p> </blockquote> <p><a href="http://www.bloombergview.com/articles/2015-02-27/investors-can-t-anticipate-future-and-should-stop-trying">Barry Ritholtz</a> is on the same theme:</p> <blockquote> <p>The noise box in your den (and on the wall of your trading room) has been tallying a catalog of potential crises and hazards. That parade of terribles seems to be getting longer each day. Although none of them are new, it is as if all of them have suddenly risen in unison, a chorus of noise, funk and angst. Markets are expensive, the Federal Reserve’s stimulus of quantitative easing and zero interest rates is ending, the euro is collapsing, deflation is a threat, rates are rising, residential real estate is a mess, biotech is a bubble, oil prices are plunging, Grexit will arrive any day.</p> </blockquote> <blockquote> <p><strong>Stock and Sector Ideas </strong></p> </blockquote> <blockquote> <p>Surprise! As Pimco reaches beyond its identity as a bond company, it now features income-oriented funds that feature stocks as well. Simon Constable (<a href="http://online.barrons.com/news/articles/SB51367578116875004693704580482084041938278?mod=djemb_mag_h">Barrons</a>) has an excellent story that also includes information about the fund holdings – plenty of ideas.</p> </blockquote> <p><a href="http://online.barrons.com/news/articles/SB51367578116875004693704580472052568055516?mod=djemb_mag_h">Barron’s also features</a> Vulcan Materials (VMC). We have been looking at stocks in this sector as solid value plays.</p> <blockquote> <p>“We’re in the second inning of the cycle,” says Rick Lane, lead manager of Broadview Opportunity fund, which owns Vulcan stock (ticker: VMC). Lane sees Vulcan generating more than $1 billion in free cash in the next three years, which could help drive the stock price to $127, up more than 50% from last week’s $82.</p> </blockquote> <p><a href="http://blogs.barrons.com/incomeinvesting/2015/02/25/perfect-storm-hitting-high-yield-market-fridson/">Beware</a> the high-yield market.</p> <p>The thirty most-shorted stocks. (<a href="http://www.businessinsider.com/most-shorted-stocks-2015-2?op=1">Akin Oyedele at BI</a>)</p> <p><strong>Market Outlook </strong></p> <p><a href="http://www.fool.com/investing/general/2015/02/25/the-blind-forecaster.aspx">Morgan Housel</a> has another great column, this time on the forecasting failures of Wall Street analysts. He cites the chart below from Birinyi Associates concludes as follows:</p> <blockquote> <p>Finance is much closer to something like sociology. It’s barely a science, and driven by irrational, uninformed, emotional, vengeful, gullible, and hormonal human brains.</p> </blockquote> <blockquote> <p>If you think of finance as being akin to physics when it’s actually closer to sociology, forecasting becomes a nightmare.The most important thing to know to accurately forecast future stock prices is what mood investors will be in in the future. Will people be optimistic, and willing to pay a high price for stocks? Or will they be bummed out, panicked about some crisis, pissed off at politicians, and not willing to pay much for stocks? You have to know that. It’s the most important variable when predicating future stock returns. <em>And it’s unknowable. </em>There is no way to predict what mood I’ll be in 12 months from now, because no matter what you measure today, I can ignore it a year from now. That’s why strategists have such a bad record.</p> </blockquote> <blockquote> <p>Worse than a Blind Forecaster.</p> </blockquote> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/03/Birinyi-on-forecasts.png"><img alt="Birinyi on forecasts" src="http://dashofinsight.com/wp-content/uploads/2015/03/Birinyi-on-forecasts.png" width="580" height="319" /></a></p> <p>No wonder Mr. Buffett recommends a five-year horizon.</p> <p><a href="http://awealthofcommonsense.com/long-term-thinking-as-a-contrarian-approach/">Ben Carlson</a> weighs in on the same theme using a great success story.</p> <p><strong>Perception and Psychology </strong></p> <p>You probably get involved in the debate over “the dress” and what color it is. For the full story — Market Watch’s <a href="http://www.marketwatch.com/column/need-to-know">Shawn Langlois starts my day</a> with his “Need to Know” column. Perhaps more than anyone I appreciate how difficult this is – something like a daily WTWA. He also contribute other pieces like <a href="http://www.marketwatch.com/story/the-dress-thats-dividing-a-nation-2015-02-26?page=1">this one</a> on the Internet debate over the dress. Mrs. OldProf and I disagreed on this one, as did our team at the office. If you managed to miss it, take a look and decide for yourself. There are some important investment lessons:</p> <ol> <li>No matter how simple the question, people see things differently. </li> <li>We do not understand the foundation for our perceptions – not even recognizing why they differ from those of others. </li> <li>No wonder people see the same chart, or the same balance sheet, and draw different conclusions. </li> <li>Buyers and sellers at the same price….</li> </ol> <p><strong>Business Cycle </strong></p> <p>Consistent with our Silver Bullet award is this excellent article from <a href="http://www.pragcap.com/on-the-extremes">Cullen Roche</a>, warning about extreme viewpoints and stubborn adherence thereto. He suggests that the bull market has another $816 million to go.</p> <p><strong>Final Thought <br /></strong></p> <p>One of my regular themes is the difference in time frames between traders and investors.</p> <p>Traders parse everything through the lens of Fed policy. HFT algorithms look for key words and front-run the humans. Human traders do the same thing – but more slowly. The blog posts hit, “explaining” why the Fed will change course.</p> <p>If you are a trader, you have a tough job competing in this game.</p> <p>Investors are free to ignore the immediate psychological reaction and to consider the fundamentals. Here are the most important two points:</p> <ol> <li>The exact timing of the first Fed rate increase does not matter. There is a difference between tight monetary policy and slightly less accommodative policy. Markets do quite well in the early stages of rising rates, especially when starting from a low initial point. This will be ignored by many who will invoke “Don’t fight the Fed.” This will be the fundamental battleground between traders and investors, bears and bulls, and various political types – perhaps lasting for years. </li> <li>The end of the business or stock market cycle is not imminent. Bull markets do not die of old age. Investors should understand that this one might run for many years. There are many famous and successful investors who have explained this, but I especially like this year-old analysis from <a href="http://www.bloomberg.com/news/videos/b/ef5e03a9-f45e-4208-9552-8da0bb40f514">Leon Cooperman</a>. It happened just as a famous technical analyst noted that markets were at “an inflection point” not unlike the 1929 crash. (See also <a href="http://www.businessinsider.com/rosenberg-equities-remain-best-game-2015-1">David Rosenberg)</a>.</li> </ol> <a href="http://dashofinsight.com/weighing-the-week-ahead-will-the-economic-news-alter-fed-policy/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2FQUWJ+%28A+Dash+of+Insight%29">See the original article >></a> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-25170922382958201912015-03-01T14:09:00.001+01:002015-03-01T14:09:54.143+01:00SPY Trends and Influencers February 28, 2015<p>by <strong><a href="http://dragonflycap.com/author/admin/">Greg Harmon</a></strong></p> <p>Last week’s review of the <a href="http://dragonflycap.com/?p=52613">macro market indicators</a> suggested, heading into the end of February saw the Equity markets as strong moving out of consolidation higher. </p> <p>Elsewhere looked for Gold (<a href="http://stocktwits.com/symbol/GLD">$GLD</a>) to continue lower in the short term while Crude Oil (<a href="http://stocktwits.com/symbol/USO">$USO</a>) continued to consolidate after its bounce. The US Dollar Index (<a href="http://stocktwits.com/symbol/UUP">$UUP</a>) also looked to continue to consolidate sideways while US Treasuries (<a href="http://stocktwits.com/symbol/TLT">$TLT</a>) were biased lower. The Shanghai Composite (<a href="http://stocktwits.com/symbol/ASHR">$ASHR</a>) and Emerging Markets (<a href="http://stocktwits.com/symbol/EEM">$EEM</a>) were both consolidating with a bias to break that to the upside. </p> <p>Volatility (<a href="http://stocktwits.com/symbol/VXX">$VXX</a>) looked to remain subdued keeping the bias higher for the equity index ETF’s <a href="http://stocktwits.com/symbol/SPY">$SPY</a>, <a href="http://stocktwits.com/symbol/IWM">$IWM</a> and <a href="http://stocktwits.com/symbol/QQQ">$QQQ</a>, despite the moves higher the past week. Their charts also suggested more upward price action on both the daily and weekly view. This was the first week in a while that all 3 Index ETF’s looked strong. </p> <p>The week played out with Gold probing lower before finding support at 1200 again while Crude Oil drifted lower in its consolidation. The US Dollar moved moved sideways but to the top of the range by the end of the week while Treasuries had a small bounce before pulling back. The Shanghai Composite came out of the holidays to the upside while Emerging Markets tried to move higher but stalled. </p> <p>Volatility drifted to a new low for 2015. The Equity Index ETF’s rose on this combination but gave back most or all of the gain by Friday. All were in a tight range all week. What does this mean for the coming week? Lets look at some charts.</p> <p><strong>SPY Daily, <a href="http://stocktwits.com/symbol/SPY">$SPY</a></strong> <br /><a href="http://dragonflycap.com/2015/02/27/macro-week-reviewpreview-february-27-2015/spy-d-232/"><img alt="spy d" src="http://dragonflycap.com/wp-content/uploads/2015/02/spy-d3-600x450.png" width="600" height="450" /></a></p> <p>The SPY started the week with a whimper, moving slightly higher after the big move the Friday prior. A slight drift higher through to a new all-time high close Tuesday and failed attempt at another Wednesday led to a small pullback and slightly lower close on the week. The daily chart shows the RSI rolling over, but still firmly in the bullish zone, while the MACD is also turning lower. </p> <p>Out on the weekly chart the breakout held but with a small candle and an upper shadow. Could be consolidation or a signal for a pullback. Perhaps a retest of the range break out. The RSI is turning down on this timeframe, but remains bullish, while the MACD is rising after crossing up last week. There is resistance higher at 212 and Measured Moves to 215 and 225 above that. Support lower comes at 210.25 and 209 followed by 206.40. <strong>Possible Pause or Pullback in the Uptrend.</strong></p> <p><strong>SPY Weekly, <a href="http://stocktwits.com/symbol/SPY">$SPY</a></strong> <br /><a href="http://dragonflycap.com/2015/02/27/macro-week-reviewpreview-february-27-2015/spy-w-242/"><img alt="spy w" src="http://dragonflycap.com/wp-content/uploads/2015/02/spy-w3-600x450.png" width="600" height="450" /></a></p> <p>Heading into March the strength that was anticipated to close February did not appear, but weakness did not show up either. Elsewhere look for Gold to continue the short term bounce higher while Crude Oil churns in the consolidation of the downward move. The US Dollar Index seems ready to move higher again while US Treasuries are biased higher short term in the pullback. The Shanghai Composite is on the cusp of another leg higher and Emerging Markets are stalled at resistance but not showing any bias. </p> <p>Volatility looks to remain subdued and may drift lower keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts are not as strong with consolidation or a pullback looking more likely in them, especially the SPY with the IWM next and QQQ strongest, holding level. Use this information as you prepare for the coming week and trad’em well.</p> <p><a href="http://dragonflycap.com/2015/02/28/spy-trends-influencers-february-28-2015/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-91143459358820470222015-02-18T13:04:00.001+01:002015-02-18T13:04:03.067+01:00The Next Real Estate Crash<p>by <a href="http://www.acting-man.com/?author=499">Ramsey Su</a></p> <h5><strong>On Shaky Ground</strong></h5> <p>Real estate does not crash, it is real estate financing that crashes.</p> <p>Easy sub-prime mortgages caused real estate prices to artificially appreciate, lack of even-more-sub-than-sub-prime financing caused prices to come back down.  Real estate did not crash, the sub-prime mortgage market did.  During the RTC era, deregulation allowed the S&Ls to lend and participate in all kinds of unsound projects.  Re-regulation shut down the madness.  The daisy chain broke and wiped out the entire S&L industry (Daisy chain was the the most popular Ponzi scheme of those days). It was financing that took the prices up, only to return to earth when financing crashed.</p> <p>Superficially, the real estate market today is stable and steadily recovering, so I am told.  When you examine the invisible forces propping up prices, today’s market is on shakier ground than the sub-prime or the RTC era.  Government intervention has always been part of the real estate market but never to the extent of today.  Now that the private sector has been squeezed out, the government can only turn to itself.</p> <h5><strong>The Federal Reserve</strong></h5> <p>The Federal Reserve created $1.488 TRILLION via purchases of mortgage back securities under QE3, from September 2012 to present.  Below are two <a href="http://www.mortgagenewsdaily.com/data/mortgageapplications.aspx">excellent charts from MDN</a>.  They show the 30 fixed mortgage rate vs the refinance and purchase indexes.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/1-refinance-index-vs-30-year-fixed.png"><img alt="1-refinance index vs 30 year fixed" src="http://www.acting-man.com/blog/media/2015/02/1-refinance-index-vs-30-year-fixed.png" width="600" height="414" /></a></p> <p>Refi index vs. 30 year fixed mortgage rate – click to enlarge.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/2-Purchase-Index-vs-30-year-fixed.png"><img alt="2-Purchase-Index vs 30 year fixed" src="http://www.acting-man.com/blog/media/2015/02/2-Purchase-Index-vs-30-year-fixed.png" width="600" height="398" /></a></p> <p>Purchase index vs. 30 year fixed mortgage rate – click to enlarge.</p> <p>What conclusions can we draw?</p> <p>QE3 succeeded originally in lowering the mortgage rate, which was already declining.  The mortgage rate subsequently moved in anticipation of but not due to actual Fed actions, such as talk of tapering.  Now rates are at the mercy of global currency wars and who knows what they will do tomorrow, with or without more Fed intervention.</p> <p>The refinance index behaved as expected, moving inversely to mortgage rates.  The purchase index, however, flat-lined as if purchasers weren’t paying attention to rates at all.  I believe this is because rates are so low already that purchase decisions have become impervious to interest rate fluctuations.</p> <h5><strong>The Agencies</strong></h5> <p>The other force elevating the real estate market is the choke hold on the secondary market by the agencies, namely Freddie, Fannie, the FHA and VA.  Increasingly, it is politics that determines underwriting guidelines.  It has been almost 7 years since the government took over Freddie and Fannie.  It took over 5 years to appoint a permanent director, Mel Watt, for a conservatorship that is supposed to be temporary.  Quietly, Mel Watt has been pushing higher debt-to-income ratios, lower down-payments and lower credit scores.  In other words, sub-prime lending is back.</p> <p>Increasingly, these agencies are behaving like self insured companies with a random but unlimited amount of loan loss reserves.  They know full well that if the excrement were to ever hit the fan again, they will always be bailed out. The FHA recently reduced its mortgage insurance (MMI) by .5%, from 1.35% to 0.85%.  The market cheered.  The Mortgage Bankers Association reported a 76.5% increase in FHA refinance applications the week this reduction was announced.  Is this a good thing?</p> <p>This decision to reduce MMI came at a time when the FHA’s capital reserve ratio is at .41% vs. 2% as mandated by Federal Law.  The FHA’s justification is that insurance rates can be reduced because it is on a path to reach that 2% reserve goal in 2 years.  Can you imagine State Farm reducing flood insurance premiums, even though they have inadequate reserves to cover losses, because they think their reserves should be adequate in 2 years time?  What happens if there is a flood in the meantime, especially when the weather report forecasts heavy rain?</p> <h5><strong>The Borrowers, a.k.a. The Sheep</strong></h5> <p>Sam Khater, economist at CoreLogic, wrote an excellent article recently, entitled <a href="http://www.corelogic.com/blog/authors/sam-khater/2015/01/ability-to-leverage-drives-foreclosure-risk.aspx?WT.mc_id=crlg_150209_KPT2L&elq=~~eloqua..type--emailfield..syntax--recipientid~~&elqCampaignId=~~eloqua..type--campaign..campaignid--0..fieldname--id~~">Ability-to-Leverage Drives Foreclosure Risk</a>.  Mr. Khater presented two charts that perfectly illustrate the deterioration in the quality of borrowers.</p> <p>Figure 1 of his article shows the high level of foreclosure rates:</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/3-foreclosure-rates-since-1980s.png"><img alt="3-foreclosure rates since 1980s" src="http://www.acting-man.com/blog/media/2015/02/3-foreclosure-rates-since-1980s.png" width="600" height="412" /></a></p> <p>Foreclosures have been in a steady uptrend since the 1980s – i.e., since the start of the credit bubble era – click to enlarge.</p> <p>Figure 2 shows that the current loan-to-value ratios are still substantially higher than before the sub-prime era. Lower ratios would suggest that the market can absorb extraneous shocks with ease, and <em>vice versa</em>.</p> <p><img alt="4-Leverage drives foreclosures" src="http://www.acting-man.com/blog/media/2015/02/4-Leverage-drives-foreclosures.png" width="600" height="438" /></p> <p>Leverage drives foreclosures.</p> <p>Sheep will always be sheep.  They survive for the purpose of getting fleeced and then slaughtered. During the original sub-prime era, sheep were turned into mortgage slaves and their household balance sheets destroyed.  The flock has not yet recovered from the 2007 disaster and the masters are already planning their next visit to the slaughter house.  I think they are now labeled “credit worthy borrowers” who are unfairly denied financing because of overly stringent underwriting guidelines.</p> <h5><strong>The Regulators</strong></h5> <p>There were plenty of regulators. The Fed, FDIC, SEC, OCC, OTS all fell asleep at the wheel during the sub-prime bubble.  All of them are still in existence and as regulators, still napping.  Today, as a result of Dodd-Frank, there is a new regulator, the CFPB.  So far, the CFPB has proven to be more of a bureaucratic nuisance, adding to the red tape but serving no preventive purposes. The CFPB started out with a roar.  They wanted QM (qualified mortgages) that mandate a down payment of 20% and a maximum benchmark of 43% DTI (debt to income).</p> <p>In the battle of one government agency against another, the CFPB was beaten back before it could make a move.  Here is a video of its attempt:</p> <blockquote> <p>My point is that regulators did nothing to prevent the sub-prime fiasco and are doing nothing apart from inflating a new bubble today.</p> </blockquote> <h5><strong>So What Could Crash the Real Estate Market?</strong></h5> <p>Anything to do with financing could crash the market.  Higher rates, moving to the 5% range for a 30 year fixed rate mortgage, would shut down the market.  Privatizing the agencies would do it, unless the government remains as the unconditional guarantor of all agency mortgages.  In other words, if the Federal Reserve and the Treasury discontinue the massive blood transfusion, the market will crash.</p> <p>Any negative change to the financial well-being of households could crash the market as well.  The bulls said millions of jobs are being created.  The bears retort that only low paying jobs are being created, while the work force continues to decline.  The facts, as they pertain to mortgages, will manifest themselves in delinquencies.</p> <p>Defaults are sky high in comparison to historical standards.  Here is the <a href="http://research.stlouisfed.org/fred2/series/DRSFRMACBN">latest delinquency report from the St Louis Fed</a>:</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/5-delinquencies.png"><img alt="5-delinquencies" src="http://www.acting-man.com/blog/media/2015/02/5-delinquencies-1024x680.png" width="600" height="398" /></a></p> <p>Delinquency rates on single family mortgages – click to enlarge.</p> <p>The Fed’s data is outdated by a quarter.  Black Knight (formerly LPS) has data up to December 2014.  Here is <a href="http://www.bkfs.com/Data/DataReports/BKFS_MM_Dec2014_Report.pdf">their delinquency table</a>:</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/6-black-knight-delinquency-table.png"><img alt="6-black knight delinquency table" src="http://www.acting-man.com/blog/media/2015/02/6-black-knight-delinquency-table.png" width="600" height="240" /></a></p> <p>Up-to-date delinquency and other data, via Black Knight – click to enlarge.</p> <p>The best leading indicator is the first row in the table above – properties that are in the early stages of default.  This rate is stabilizing at an unacceptable level.  The market has seemingly forgotten that there are still millions of negative equity loans. There are also millions of artificially modified loans in the agencies’ portfolios.  Compounded by the shaky loans that have been originated by the agencies during the last couple of years, especially minimal down FHA loans, too many households remain just a couple of paychecks away from default.</p> <p>The bigger issue is not what may crash the market but the magnitude of the event.  During the Volcker years, even when rates were raised to astronomical levels (can you imagine a Federal Funds rate of 20%, vs. one approaching negative levels today), the market did not move much because there were only a small minority of loans at risk.  During the sub-prime bubble, if not for derivatives that leveraged its size, Bernanke could have been correct by stating that sub-prime was contained in 2007.  Today, the underlying market weakness is so broad that any new snow flake may be the one that sets off an avalanche.  Policy makers have already gone all in with no tools left to minimize the damage.</p> <p>As you might expect, I remain bearish on housing.</p> <p><a href="http://www.acting-man.com/?p=35903&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+acting-man%2FOGxh+%28Acting+Man%29">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-37791289245670374732015-02-18T12:59:00.001+01:002015-02-18T12:59:58.361+01:00The Catastrophic Costs of Extend-and-Pretend Are About to Crush Europe<p>by Charles Hugh Smith</p> <p><i>Like a star which has expanded and now cannot maintain its grand state, Europe's extend-and-pretend economy is now poised to experience a supernova implosion.</i></p> <p><b> <br /></b></p> <p><b>The costs of ill-conceived policies are always paid by someone--usually those with the least political power.</b> In ill-conceived wars, the costs are paid by the soldiers on the ground and their families, and the civilians who suffer <i>collateral damage</i>.</p> <p><b>The costs of ill-conceived financial policies end up being paid by taxpayers, savers, borrowers and those who lose their jobs in the inevitable bust.</b> Those who conjured up the disastrous policies slink away to plush villas or defend their stubborn addiction to failed ideologies in the media (see Keynesian Cargo Cult and Paul Krugman).</p> <p><b>The most ill-conceived financial policy of all is <i>extend-and-pretend</i>:</b> <i>extend-and-pretend</i> means if a debtor is bankrupt, then extend him more loans to maintain the illusion of solvency.</p> <p><b>Here's how <i>extend-and-pretend </i>works in the real world:</b> <br /><b> <br /></b></p> <p>-- If a homebuyer has defaulted, give him new loans, or shift his loan off the books into <i>zombie mortgage</i> status.</p> <p>-- If a student defaults on student loans, shift the loans into <i>forbearance</i>, i.e. mask the default by putting the defaulted debt into zombie mode.</p> <p>-- If a bank is insolvent, give it unlimited access to unlimited lines of central bank credit and lower interest rates to zero so the bank doesn't have to pay interest on deposits.</p> <p>-- If a nation is bankrupt, extend it new loans.</p> <p><b>The official reason for <i>extend-and-pretend</i> is the belief that time will heal all--</b> that given enough time, all problems solve themselves via some sort of pixie dust. In essence, this faith that time will heal all is a delusional state of magical thinking, for extending and pretending only enables the kleptocrats and the elites benefiting from the failed Status Quo to continue holding power.</p> <p><b>As painful as it would have been, Greece should have been refused loans in 2010 and 2011, and been ejected from the euro.</b> The situation was visibly hopeless to everyone then, and <i>extend-and-pretend</i> was never going to solve the structural imbalances in the Greek economy that had been furthered or enabled by the euro and easy credit.</p> <p><b>What did Europe buy with its $245 billion bailouts of Greece? Nothing.</b> The $245 billion-- equal to the entire GDP of Greece--squeezed the citizens of Greece while leaving the kleptocracy in charge--the worst possible outcome.</p> <p>If policymakers had rejected <i>extend-and-pretend</i> and grasped the nettle in 2010/2011, Greece would be through the painful period of adjustment to its own currency. Deprived of the euro gravy train, its ruling kleptocracy would have collapsed or been ejected by the people as a failed regime.</p> <p><b>Thanks to <i>extend-and-pretend</i> bailouts, the pain of adjusting to reality is now being dumped not just on the people of Greece but on the people of every nation in the EU.</b> Frequent contributor Mark G. explains why: <i>most of the debt owed by Greece doesn't just vanish when Greece defaults--it must be paid by the other EU nations that guaranteed the debt.</i></p> <p><i> <br /></i></p> <p><img border="0" src="http://www.oftwominds.com/photos2015/Greek-debt2-15.gif" align="center" /></p> <p><b> <br /></b></p> <p><b>Here's Mark's explanation:</b></p> <blockquote><b>The issue is not whether Greece's European Financial Stability Facility (EFSF) backed debts will be repaid. The question is who will repay them.  </b><a href="http://en.wikipedia.org/wiki/European_Financial_Stability_Facility#Guarantee_commitments">European Financial Stability Facility</a> (Wikipedia)</blockquote> <blockquote>The structure of the EFSF and related packages means that if Greece will not/can not pay then every single guarantor country has to come up with fiscal appropriations to backstop any deficiency left by Greece in a default. This means going back to their national parliaments in most if not all cases for fiscal appropriations to do this. At this point what the Germans demonize as <i>The Transfer Union</i> will emerge stripped of all camouflage in all its hideousness.</blockquote> <blockquote><b>This is going to be politically explosive in itself for every one of these Eurozone governments.</b> Nor is this confined to so-called "creditor" states, except in the sense that every non-defaulting state will be a creditor.</blockquote> <blockquote>So-called debtors and crisis states like Italy, Spain, Portugal and Ireland are all liable in large varying amounts as well as Finland, Holland, France and Germany. The first four, generally classed as being 'debt crisis' states themselves, are liable for a total of 240 billion euros as their end of the EFSF. Since Greece accounts for about 1/3 of the EFSF this works out to 80 billion euros for four weakened sates already experiencing their own Austerity.</blockquote> <blockquote>I cannot imagine that at this moment any of these cabinet politicians could tolerate a second budgetary line item that decodes as <b><i>Additional New Money & Guarantees For Greece Under Tsipras/Varoufakis/Syriza</i>. </b></blockquote> <blockquote>Greece can indeed initiate that process. And having done so, no one will have any further tolerance for Greece at the table. Their leverage begins and ends with default.</blockquote> <blockquote>The seeds of disaster were planted when Greece was first admitted to the ECB and euro under false pretenses.</blockquote> <p><b>Extending imprudently massive loans to marginal borrowers always plants the seeds of disaster, and extending and pretending turns a potentially containable disaster into an uncontainable financial calamity.</b> Yet this is the game plan of policymakers everywhere, from Europe to the U.S. to China--extend enormous loans to marginal borrowers and then mask the inevitable defaults with extend-and-pretend policies that vastly increase the size of the debt.</p> <p>By the time extend-and-pretend finally reaches its maximum limits, the resulting implosion is so large that the shock waves topple regimes, banks, currencies and entire nations.</p> <p>Like a star which has expanded and now cannot maintain its grand state, Europe's extend-and-pretend economy is now poised to experience a supernova implosion.</p> <p><a href="http://charleshughsmith.blogspot.it/2015/02/the-catastrophic-costs-of-extend-and.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+google/RzFQ+(oftwominds)">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-39932117717026776522015-02-17T15:04:00.001+01:002015-02-17T15:04:15.604+01:00Mid-Caps doing best job of growing your nest egg<p>by Chris Kimble</p> <p><a href="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/realreturnssince2000feb17.jpg"><img alt="realreturnssince2000feb17" src="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/realreturnssince2000feb17-675x351.jpg" width="608" height="316" /></a></p> <p><strong>CLICK ON CHART TO ENLARGE</strong></p> <p>A good number of people invest in stocks with a common goal, grow their nest egg and beat the cost of living. The above chart looks at large, mid-caps, small-caps and tech stocks performance since 2000, net of inflation. The clear winner of this time period is Mid Caps, doubling the next closest index, which was small caps. The NDX 100 is bringing up the rear as it is the only index to be behind the cost of life since 2000.</p> <p>If one looks at performance since the financial crisis lows in  2009, the NDX is the winner (+234%), followed by Mid Caps (+221%), Russell (+203%) and the S&P 500 (+168%).</p> <p>When looking at both time frames, Mid Caps have done pretty well! So which index will beat the cost of living over the next 5 to 15 years?</p> <p>Below is a look at the patterns each of these key index’s are creating at this time.</p> <p><a href="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/majorindexattemptingbreakoutfeb17.jpg"><img alt="majorindexattemptingbreakoutfeb17" src="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/majorindexattemptingbreakoutfeb17-675x316.jpg" width="608" height="284" /></a></p> <p><strong>CLICK ON CHART TO ENLARGE</strong></p> <p>From  a Power of the Pattern perspective, I took a look at each of these key markets on a monthly basis. Mid-Caps in the upper left, are looking the best, as they are breaking above a long-term Fibonacci extension level. Russell 2000 and SPX are both attempting to break above an important Fibonacci extension levels and the NDX 100 is nearing monthly high resistance created back in 2ooo.</p> <p><a href="http://blog.kimblechartingsolutions.com/2015/02/mid-caps-doing-best-job-of-growing-your-nest-egg/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-83506386013548142932015-02-17T13:49:00.001+01:002015-02-17T13:49:36.983+01:00Greek stand-off<p>by Buttonwood</p> <p>SO the talks between Greece and the EU finance ministers broke up in acrimony last night and we have a new "deadline" of Friday. That is the date Jeroen Dijsselbloem, the Dutch finance minister, <a href="http://www.reuters.com/article/2015/02/17/us-eurozone-greece-idUSKBN0LJ0SH20150217">set for Greece to apply for an extension</a> of the bailout programme. Greece called the EU plan "absurd and unaceeptable".</p> <p>The good news is that this is partly an issue of semantics. The EU wants Greece to apply for an extension to the existing bailout programme, and the conditions can be altered once the extension is in place; Greece wants the existing programme to be abandoned and a bridging loan to be offered while a new deal is agreed. It is not difficult to see how a form of words might be found to bridge this gap; one wag suggested that the deal be called an extension in the German language text and a bridging loan in the Greek version.</p> <p>But the bad news is also that the argument is about semantics. Syriza won election of a platform of rejecting the bailout terms, so needs a victory on this specific issue; the EU has constructed an entire system of condition loans and bailout programmes and does not want to see this destroyed. Neither side will want to give way on the language. It is also a matter of negotiating tactics; the EU is in a better position to drive a bargain if Greece is operating under the existing bailout, Greece will be in a much stronger position if it is able to get money without conditions. So success on this seemingly minor point of language may lead to success on the entire deal.</p> <p>The markets have inclined, all along, to the view that a deal will be reached in the end because both parties will lose from a breakdown. Perhaps investors have been made cynical by the kind of rhetoric that accompanied debt ceiling talks in the US, when threats of default and shutdown were averted at the 11th hour. My feeling is that this attitude is complacent; Syriza was elected precisely because its leaders did not believe in "politics as usual".</p> <p>Among the commentariat, the consensus view has been that, since EU austerity has been misguided from the start, the Greeks are right and should get what they want. As Charles Grant of the Centre for European Reform made clear at a <a href="http://www.economist.com/blogs/buttonwood/2015/02/economics-and-finance">meeting yesterday</a>, this is not the view from Brussels; the belief there is that reforms have been working in Spain and will work elsewhere if patience is shown. Allowing Greece to head in the opposite direction will undo the good that has been done. Indeed, this isn't really an issue about the debt any more; Greece has already had its debt service costs reduced massively by a combination of maturity extension and low rates. It is an issue of reform. The EU seems more than happy about Syriza's attempts to crack down on tax avoidance, although experience suggests this raises less money that you hope; it is not so keen on the rest of its programme.</p> <p>All this gets tied up, rather confusingly, with the<a href="http://www.economist.com/blogs/buttonwood/2015/02/greece-and-euro-crisis"> idea of democracy</a>; that Greece has just elected Syriza and thus has the right to put its programme into place. The issue was brought up in a Radio 4 Today interview with the economist Christoper Pissarides; what about the rights of German voters, the interview asked? The answer from Mr Pissarides is that German voters should understand that this is an issue of EU solidarity from which one day they might benefit. But this is not what German voters feel. One assumes that Mr Pissarides thinks German voters should change their mind. But once one goes down this road, an appeal to democracy is lost; if the German voters can be "wrong", then democracy is not the gold standard. </p> <p>It is generally accepted that democracy has its limits. First, the rights of minorities must be respected; 51% of the population does not have the right to enslave, or kill, the other 49%. But the second constraint is a financial one. Voters cannot create prosperity simply by voting; they can vote for the preconditions of prosperity but a lot of hard work and skill is not needed. If they run persistent current account deficits and thus incur debts overseas, they must find a way to keep servicing those debts or lose that financial support. Greece could indeed refuse to do a deal. But that implies refusing all the other support from the EU including the liquidity that stands behind the Greek banking system. This will not be a pleasant option.</p> <p>This brings us back to the game of chicken. Will a failure of the talks lead to more damage in Greece or in the wider EU? The former seems more likely at the moment and certainly seems to be the belief of EU finance ministers. But Syriza may have raised unrealistic expectations among its voters about the kind of deal it can pull off. That is why compromise is far from certain. </p> <p><a href="http://www.economist.com/blogs/buttonwood/2015/02/euro-crisis-0?fsrc=rss">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-38815361612994164032015-02-16T20:47:00.001+01:002015-02-16T20:47:43.756+01:00EU Leaders "Are Afraid The Syriza 'Virus' Will Spread Across Europe"<p>by <a href="http://www.zerohedge.com/users/tyler-durden">Tyler Durden</a></p> <p>As anti-austerity protests continue to build in numbers across Europe (and not just in Spain where Podemos now holds a commanding poll lead over the status quo) <a href="http://www.keeptalkinggreece.com/2015/02/16/mp-filis-they-are-afraid-the-syriza-virus-may-spread-across-europe/">KeepTalkingGreece reports</a> that Greek parliamentary spokesman for Syriza, Nikos Filis notes <strong><em>"The wave of protests indicates a new beginning... And it scares the dominant forces in Europe. Because Syriza virus can spread and in their communities."</em></strong> And we suspect that is indeed the Eurogroup's greatest fear...</p> <p>Via AVGI (Google Translate),</p> <blockquote> <p>The demonstrations of solidarity with the Greek people against the austerity policies and enrolled in a European perspective changes and upheavals. This scares the dominant forces in Europe. Because the "virus" SYRIZA can spread and in their communities,"said the parliamentary spokesman of SYRIZA Nick Phillis.  </p> <p><strong>"The wave of protests indicates a new beginning because SYRIZA virus can spread to the rest of Europe, as solidarity rallies in Greek people are against the austerity policies that degrade the lives of European citizens. The protests shall be entered in a European perspective changes and upheavals. And it scares the dominant forces in Europe. Because SYRIZA virus can spread and in their communities."</strong></p> <p>Commenting on Juncker statements and attitude of Europeans, in recent times, given the current Eurogroup for the Greek issue, Nikos Phillis speaks of "democracy deficit in Europe" and notes:</p> <p>"They have behind them saying in recent days, seems to insist on completion of the Memorandum program harden their stance. This element is important to take account of people and Greece and Europe. Most likely not end today, having a horizon until 28/2. It is a political issue, not a technical one, because they put issues not related financial interest, such as labor. And on the part of creditors is not the issue of a minimum wage only, is subject a comprehensive, collective bargaining rights of a system, a European acquis in Greece is not the case. <strong>When elections take place in a country, we must respect the will of citizens, it is sovereignty issue.</strong> But the loan agreement is a bilateral relationship and the Greece and its creditors, the memorandum is a relationship that the Greece and has to do with the domestic legislation. Therefore, it says Juncker and others in Europe is not right, why do not question multilateral European treaties, but a treaty that its internal legislation.<strong> This raises issues of sovereignty and democratic representation. The negotiations should take into account the political change in our country. If not taken into account, this shows the perception in Europe for democracy, indicates lack of democracy in Europe</strong> ".</p> </blockquote> <p>The Greek Solidarity anti-austerity protests are spreading...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150216_EU1.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150216_EU1.jpg" width="605" height="509" /></a></p> <p><a href="http://www.zerohedge.com/news/2015-02-16/eu-leaders-are-afraid-syriza-virus-will-spread-across-europe">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-24034290848428466342015-02-16T18:41:00.001+01:002015-02-16T18:41:10.834+01:00Grexit<p> </p> <p><a href="http://twitter.com/ECantoni/status/567319230576865281/photo/1"><img title="View image on Twitter" alt="View image on Twitter" src="https://pbs.twimg.com/media/B9-Fp-tIYAAc_Bb.png:large" width="397" height="600" /></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-63036450830162914072015-02-16T14:28:00.001+01:002015-02-16T14:28:01.685+01:00Monetary Aggregates Compared<p>by <a href="http://www.acting-man.com/?author=6">Pater Tenebrarum</a></p> <h5><strong>The Fed has Provided the Bulk of Money Supply Growth since 2008</strong></h5> <p>We have discussed the topic of money supply growth extensively in these pages over time. Below is a brief recap of how the system works in the US. Note that although fractional reserve banking and central bank-directed and backstopped banking cartels are in place all over the world, there are several “technical” differences between them. So the workings of the US system cannot be transposed 1:1 to e.g. Japan’s system or the euro system.</p> <p>There are two possibilities of growing the fiat money supply: In “normal” times, commercial banks will extend loans which are partially “backed” by fractional reserves. These loans create new deposit money, which once again can serve as the basis of further credit creation, which again creates new deposit money, and so forth. It can be shown mathematically that based on a hypothetical fractional reserve requirement of 10%, extant deposit money in the system can be grown 10-fold (for a detailed discussion of the “money multiplier”, <a href="http://www.acting-man.com/?p=3867">see here</a>).</p> <p>In actual practice, reserves have not represented a constraint for credit and money supply growth by commercial banks for quite some time. In the US banks can e.g. “sweep” money from demand deposits into so-called MMDAs (money market deposit accounts) overnight, letting these funds “masquerade” as savings deposits, which allows them to circumvent reserve requirements. Moreover, if credit demand is so strong that interbank lending rates (i.e., the Federal Funds rate) threaten to rise above the target rate set by the Federal Reserve, the central bank will supply additional reserves to the extent necessary to keep the rate on target. Thus the required fractional reserves will be supplied even if commercial banks don’t have sufficient excess reserves to lend to banks short of reserves.</p> <p>None of this has been of importance since the 2008 crisis however, as “QE” has created such an overhang of excess reserves that interbank lending rates have continually wallowed close to the lower end of the 0.00%-0.25% Federal Funds target corridor. Moreover, up until late 2013/early 2014, commercial bank credit growth had slowed to a crawl anyway. So barely any money supply growth has come from the banking sector after the crisis. Enter the Fed, and “QE”.</p> <p>In theory, if the central bank buys securities directly from banks, it would only issue bank reserves in payment (the selling bank receives a check drawn on the Fed, and upon depositing it, its reserves account at the Fed is credited). In actual practice however, QE in the US system concurrently also creates new deposit money at close to a 1:1 ratio. Most of the broker-dealers the Fed uses as counterparties in its open market operations belong to banks, but they are legally distinct entities (i.e., they are legally non-banks). Hence, when their accounts are credited, not only bank reserves are created, but new deposit money as well.</p> <p>Our friend Ronald Stoeferle, one of the managers of the Incrementum fund in Liechtenstein, has mailed us an interesting chart that compares the growth rates of the official US monetary aggregates and total debt in system since 2008. It shows how the Fed really had to put the pedal to the metal to create money supply growth. System-wide debt growth meanwhile remained subdued (the government has grown its debt enormously and corporations have also expanded their debt load, households however have deleveraged):</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/1-Monetary-Aggregates-since-2008.png"><img alt="1-Monetary Aggregates since 2008" src="http://www.acting-man.com/blog/media/2015/02/1-Monetary-Aggregates-since-2008.png" width="600" height="370" /></a></p> <p>Growth rates of US monetary base, M2, M3 and total credit market debt owed since 2008 – click to enlarge.</p> <p>Note that the Fed no longer calculates M3, but several people have reconstructed it using alternative data sources (e.g. here is an article explaining how our friend Bart at <a href="http://www.nowandfutures.com/articles/20060426M3b,_repos_&_Fed_watching.html">Nowandfutures is calculating M3</a> these days. <a href="http://www.shadowstats.com/article/money-supply-m3-continuation">John Williams of shadowstats</a> has also reconstructed the series).</p> <p>Even though “QE” translates directly into deposit money (which is counted as part of the money supply; by contrast, bank reserves are not part of the money supply, as they remain outside of the economy), the smaller base from which the monetary base started out in 2008 meant that base money had to be expanded to a far greater extent in percentage terms to achieve the growth in the broad monetary aggregates depicted above.</p> <p>It should be noted that all deposit money created as part of “QE” operations represents so-called “covered money substitutes”, as the bank reserves covering it have been created concurrently. By contrast, if new deposit money comes into being in a commercial bank credit operation based on fractional reserves, the bulk of the money substitutes (i.e., the deposit money) created in the process consists of <em>uncovered</em> money substitutes. If more than a certain percentage of depositors were to attempt to withdraw their demand deposits at the same time, they would find out that the money is actually not there. Due to QE, nowadays a far larger percentage of the deposit money in the system is actually of the covered variety than was previously the case (approx. 29% vs. about 5% in the pre-crisis era).</p> <h5><strong>What Should be Counted as Money?</strong></h5> <p>As readers know, we prefer the “Austrian” measure of the money supply, money TMS (which stands for “true money supply”) over the official broad money supply aggregates. As Murray Rothbard noted in his essay “<em>Austrian Definitions of the Supply of Money</em>”:</p> <blockquote> <p>[…] <em>money is the general medium of exchange, the thing that all other goods and services are traded for, the final payment for such goods and services on the market.”</em></p> </blockquote> <p>This seems straightforward enough and surely everyone would agree with this definition. In a fiat money system, we can differentiate between “standard money” – i.e., banknotes – and deposit money. Both are equally serviceable for effecting final payment for goods and services and hence form part of the money supply in the broad sense.</p> <p>Why was it thought necessary to create the Austrian money measure TMS and what makes it different from the official monetary aggregates? It all comes down to the definition of money cited by Rothbard above. The official measures such as M2 contain components that are actually <em>not</em> money according to this definition, while excluding some that are.</p> <p>The most important of the non-money components are money market funds. Since money market funds buy short term debt securities and issue share units to investors, they are merely a credit intermediary: The money they use in order to buy e.g. commercial paper shows up in the form of deposit money on the accounts of borrowers. Investors holding mutual fund shares aren’t holding money; they cannot use their mutual fund shares for payment. These shares must first be sold, and only thereafter the money received for them can be used in payment. Counting these money market funds as part of the money supply therefore results in double-counting.</p> <p>For more details on which components of the money supply aggregates are not part of money TMS and which components that are not part of the “Ms” are included in it, readers should check out <a href="http://blogs.forbes.com/michaelpollaro/money-supply-metrics-the-austrian-take/">Michael Pollaro’s excellent and extensive article on the topic</a>. The article also contains a list of references to essays by various other “Austrian” economists on the topic.</p> <p>In terms of money TMS – this is to say actual money – the Fed has been a bit more effective in blowing up the money supply than is indicated by the growth of M2 and M3. At the beginning of 2008, the broad money supply measure TMS-2 stood at $5.3 trillion; as at the end of December 2014, it stood at approx. $10.703 trillion, in short, it has more than doubled.</p> <p>We have recently show the chart of TMS-2 in a different context, but here it is again:</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/2-US-money-TMS-2.png"><img alt="2-US money TMS-2" src="http://www.acting-man.com/blog/media/2015/02/2-US-money-TMS-2-1024x680.png" width="600" height="399" /></a></p> <p>US money TMS-2 (broad true money supply) – click to enlarge.</p> <p>The difference between the growth rate of TMS-2 and M2 is largely due to the latter’s money market funds component – M2 started from a much higher base in 2008, and due to the stock and bond market rally since 2009, money market fund investments have been drawn down in favor of investment in “risk assets”.</p> <p>Note that while changes in money market fund holdings may occur on account of people replacing them with investment in stocks and bonds, this decision has no influence whatsoever on the amount of money in the system, as every purchase of securities is matched by a sale. All that happens is that the ownership of securities and the money used to pay for them changes.</p> <p>This is also why the “money on the sidelines” argument often cited by stock market bulls really makes no sense. Whenever a trade takes place, there is as much “money on the sidelines” after it as there was before it. Only a change in ownership occurs. The only sensible thing that can be said in this context is that the overall supply of money has more than doubled since 2008 courtesy of the Fed’s electronic “printing press” – in that sense, there is indeed more “money on the sidelines”.</p> <p><strong></strong></p> <h5><strong>Recent Developments</strong></h5> <p>Below is a chart showing the annualized growth rate in commercial and industrial loans in the US. The annualized rate of growth has recently accelerated to about 13.8%, which means that commercial banks have so to speak taken the baton from the Fed in terms of creating money supply growth:</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/3-C-and-I-loans-y-y.png"><img alt="3-C and I loans, y-y" src="http://www.acting-man.com/blog/media/2015/02/3-C-and-I-loans-y-y-1024x680.png" width="600" height="398" /></a></p> <p>Annualized growth rate of US commercial and industrial loans – click to enlarge.</p> <p>These are actually typical boom time credit growth figures. They are counterbalanced a bit by a much slower growth rate in consumer credit. This is the main reason why the contribution of bank lending growth to money supply growth hasn’t been strong enough to achieve much more than keeping money supply growth roughly steady since the end of “QE”.</p> <p>It remains to be seen whether the recent collapse in the oil price will affect these credit growth rates. A lot of credit has been pumped into the oil patch in recent years, and this activity seems now likely to grind to a halt. It seems therefore possible that the slowdown in the broad money supply growth rate in evidence since its 2010 and 2011 peaks will soon resume. Currently (i.e., as of year-end 2014), the year-on-year growth rate stands at 7.97%, which is down from the 16.7% and 15.67% peak growth rates in 2010 and 2011 respectively, but roughly still in the same range that has prevailed since late 2013 when “QE” was discontinued.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/4-TMS-2-growth-rate.png"><img alt="4-TMS-2 growth rate" src="http://www.acting-man.com/blog/media/2015/02/4-TMS-2-growth-rate-1024x680.png" width="600" height="399" /></a></p> <p>TMS-2, year-on-year growth rate – click to enlarge.</p> <p>As this chart also indicates, asset price bubbles tend to peak with a lag to peaks in money supply growth rates, usually after a certain (unknowable) threshold in the annual growth rate is undercut. The threshold just prior to the 2008 crisis was very low (less than 2%), but it was e.g. at about 5% in 2000 before the Nasdaq bubble broke. What level of money supply growth will be decisive this time around is something we will once again only be able to ascertain in hindsight, but the fact remains that such a threshold exists.</p> <h5><strong>Conclusion:</strong></h5> <p>The Fed has been responsible for the bulk of money supply growth since 2008, but this has recently changed. For the moment, the commercial banks are “back in the game” and have replaced the effect “QE” had on money supply growth by ramping up their inflationary lending. Traditional bank credit growth has ergo once again become an important measure to watch. The sideways move in broad money supply growth that could be observed over the past year could still continue for a while, but we suspect that there will eventually be a further slowdown. If so, it will be bad news for the asset price bubble.</p> <p><a href="http://www.acting-man.com/?p=35838&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+acting-man%2FOGxh+%28Acting+Man%29">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-47862786265186577942015-02-16T14:23:00.001+01:002015-02-16T14:23:34.427+01:00Key Market Gauge Hits All-Time High<p>by Dana Lyons</p> <p>You’ve heard me mention many times that we consider breadth, i.e., the number of stocks advancing versus declining, to be an important barometer of the market’s overall health. The more stocks that are advancing, the healthier the rally. One way to measure market breadth is by looking at indices on an “equal-weight” basis. Again, an equal-weight basis is just that: it places an equal weight on each of the components in the index as opposed to placing greater weight on those stocks with the largest market cap. This way, it is easier to tell if there is broad participation across the whole market or sector rather than perhaps just a few of the larger-cap issues leading the way.</p> <p>Thanks to the Rydex/Guggenheim family of funds, we can easily monitor these equal-weight indices through ETF’s. We looked at one example <a href="http://jlfmi.tumblr.com/post/110698736840/despite-commodity-rout-materials-sector-is-at">the other day</a> in the Equal-Weight Materials ETF (ticker, RTM). While the broad materials index has been lagging, RTM was hitting an all-time high. As of yesterday, we can say the same thing about the Equal-Weight S&P 500 ETF (ticker, RSP). It too is now at an all-time high.</p> <p><img alt="image" src="http://media.tumblr.com/5d0fa73fbb9d56233658878bd6488eeb/tumblr_inline_njq0gkwgaA1sq14jh.jpg" /></p> <p>As the chart shows, after moving sideways for the past few months, the Equal-Weight S&P 500 broke out to a new all-time high. This again is important considering it takes all constituents equally into account. Thus, if the ETF is at an all-time high, the majority of its components must also be doing well. This is good news for the broad stock market at the present time.</p> <p>If there is a chink in the armor here, it is in the relative ratio of RSP to the S&P 500 (specifically, we are using the SPDR S&P 500 ETF, SPY). Despite the new high in RSP, its ratio versus SPY has not yet surpassed the high it made last June. We have seen this sort of divergence before (i.e., RSP goes to a new high but the RSP/SPY ratio does not), generally near tops in the market. For example, in 2007 (not shown) the RSP/SPY ratio peaked in February. Meanwhile, the RSP continued to make new highs into June. Of course, the market topped soon afterward.</p> <p>We are not saying that the RSP/SPY ratio must confirm the new highs or else the market will collapse. If asked which was more important, the absolute price or the ratio, we would say the absolute price of the RSP. It is unquestionably a bullish sign to have it hitting all-time high ground. We are simply pointing out the fact that conditions are not “perfect” (when are they?), despite the breakout. The ratio divergence in the past has been a good warning sign of danger in the market. That’s why we bring it up.</p> <p>The main takeaway, however, is a bullish one. The fact that a broad index like the equal-weight S&P 500 is making an all-time high suggests that the rally is healthy and that the market top is not imminent. Of course the market can top at any time. However, history would suggest that, like with the NYSE Advance-Decline Line, any market decline would likely result in at least 1 more eventual marginal new high in the S&P 500 before <i>THE </i>top is in.</p> <p><a href="http://jlfmi.tumblr.com/post/110909249600/key-market-gauge-hits-all-time-high">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-72385472155611513052015-02-16T14:16:00.001+01:002015-02-16T14:16:33.489+01:00Greece and Euroland's Crumbling McMansion of Debt<p>by Charles Hugh Smith</p> <p><i>All the gimmicks lenders press on borrowers to maintain the artifice that the loan is being serviced are financial frauds.</i></p> <p><b> <br /></b></p> <p><b>Sometimes the best way to summarize a complex situation is with an analogy.</b> The Greek debt crisis, for example, is very much like the subprime mortgage crisis of 2007-08.</p> <p><b>As you might recall, service workers earning $25,000 annually got $500,000 mortgages to buy McMansions in subprime's go-go days.</b> The applicant fudged a bit here and there on income and creditworthiness, and lenders reaping huge profits from originating and selling mortgages were delighted to ignore prudent underwriting standards and stamp "low-risk" on the mortgage because it was quickly sold to credulous investors.</p> <p>The bank made its money in transaction and origination fees, and passed the risk of default on to investors who accepted the fraud that the loan was low-risk.</p> <p><b>The loan was fundamentally imprudent and risky because the borrower was not qualified for a loan of such magnitude.</b> But since the risk was distributed to others, the banks ignored the 100% probability of eventual default and skimmed the profits upfront.</p> <p><b>Greece was the subprime borrower</b>, and its membership in the euro gave the banks permission to enter the credit rating of Germany on Greece's loan application. Though anyone with the slightest knowledge of Greece's economy knew it did not qualify for loans of such magnitude, lenders were happy to offer the loans at interest rates close to those of Greece's northern neighbors, and then sell them as low-risk <i>sovereign debt</i> investments.</p> <p>In effect, the banks were free-riding the magical-thinking belief that membership in the euro transformed risky borrowers into creditworthy borrowers.</p> <p><b>It's as if the $25,000/year worker wrote in a rich cousin's sterling credit score on his mortgage application.</b> The lender and applicant conspired to fudge the numbers to lower the apparent risk of the loan. In the case of Greece, Greece and the lenders each fudged the numbers; there was no real penalty for doing so, and the rewards for doing so were substantial.</p> <p><b>Marginal borrowers eventually default, and sure enough, both the subprime borrower and Greece soon defaulted.</b> Life isn't perfect; people lose their jobs, get divorced, have medical emergencies, etc., and recessions lower GDP and national income.</p> <p>Prudent lenders make allowances for these risks. But lenders who make big money originating loans and offloading them to others have no incentive to be prudent; rather, they have every incentive to make as many loans as they can, as quickly as they can, to maximize their profits.</p> <p><b>Faced with massive writedowns, the lender has two choices:</b> it can loan the defaulting borrower more money, with the explicit guarantee that the borrower will use the money to pay interest on the original mortgage. The total loan amount goes up, but the loan stays on the books at full value.</p> <p>Or the lender can roll the mortgage into a lower-interest loan, effectively entering <i>partial forbearance</i>: the promised return on the mortgage plummets, but as long as the borrower makes small monthly payments, the loan stays on the books at full value.</p> <p><b>Both of these strategies have been deployed in Japan for decades to keep impaired debts on the books at full value.</b></p> <p><b> <br /></b></p> <p><b>The last choice is to turn the mortgage into a <i>zombie loan</i>:</b> the loan is neither written off nor listed as being in default: it enters a zombie state, not in good standing but not in default, either. The mortgage can stay in this netherworld for years, as the lender waits for the market to rise enough that the house can be sold without the lender absorbing a huge loss on the mortgage.</p> <p>Unfortunately for buyers of sovereign debt, there is no house that can be sold to pay down the debt. Lenders can demand the debtor-nation sell off its assets to make good on the loans, but there is little recourse should the debtor-nation refuse.</p> <p><b>When the borrower can barely make the monthly payment, he becomes a zombie.</b> The loan principal barely budges, and so the future is unending penury. The borrower can cut expenses--bike to work, only eat beans and rice, only buy thrift-store clothing, etc.,--but this austerity doesn't change anything: he still can't afford the loan.</p> <p><b>This is why austerity is a fake solution:</b> no matter what the guy earning $25,000 a year does, he will never be able to pay down the $500,000 mortgage.</p> <p><b>Meanwhile, the poorly constructed McMansion is falling apart.</b> The loan didn't boost the borrower's productivity, or create a new income stream; the borrowed money was squandered on something that did nothing for the borrower that something much, much cheaper could have done just as effectively.</p> <p>What did Greece get for its $300+ billion in debt? Did it transform the lives of all citizens for the better, fix all its dysfunctional systems, and build an economy for the 21st century? No; the borrowed money simply masked the dysfunctional systems and allowed the Status Quo kleptocracy to reap fortunes.</p> <p><b>Greece's lenders want to keep the imprudently issued loans on the books at full value.</b>They followed the strategy of loaning Greece more money, but only to make the interest payments. Now there is fevered talk of some version of <i>partial forbearance</i>: rolling the debt into new loans, perhaps writing off a chunk of the debt, etc.</p> <p><b>None of this changes the fundamental fact that Greece was unqualified to borrow that much money.</b> No matter what the guy earning $25,000 a year does, he will never be able to service the $500,000 debt in a way that frees him from zombie servitude to the lender.</p> <p><b>So the hapless subprime borrower with the crumbling McMansion and Greece both have the same choice:</b> decades of zombie servitude to pay for the crumbling structure, or default and move on with their lives.</p> <p><b>All the gimmicks lenders press on borrowers to maintain the artifice that the loan is being serviced are financial frauds.</b> They are simply new frauds piled on the initial fraud of issuing a visibly imprudent loan. The borrower was not creditworthy and the lender should never have offered him loans of that magnitude and at that low interest rate. <b>The losses belong to the lenders, period.</b></p> <p><a href="http://charleshughsmith.blogspot.it/2015/02/greece-and-eurolands-crumbling.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+google/RzFQ+(oftwominds)">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-77696642397744703792015-02-15T22:31:00.001+01:002015-02-15T22:31:00.367+01:00Weighing the Week Ahead: Will Energy Stocks Support the Market Breakout?<p>by oldprof</p> <p>Stocks show continuing strength, testing the top of the recent trading range and making new highs. The sector rotation has favored “risk on” despite rather soft economic data. At the heart of this anomaly is the energy trade. In a holiday-shortened week, I expect markets observers to ask:</p> <p><strong><em>Is there a bottom in energy stocks? Will this support the overall market breakout? </em></strong></p> <p><strong>Prior Theme Recap <br /></strong></p> <p>In last week’s WTWA <a href="http://dashofinsight.com/weighing-week-ahead-time-risk/">I predicted</a> that the punditry (in the absence of much fresh data) would be asking whether it was time for “Risk on.” This was a very accurate call, with plenty of attention throughout the week. The general market reaction was “yes” and the traders were taking note of the decline in utilities and bonds, and the strength in oil prices and commodities.</p> <p>Feel free to join in my exercise in thinking about the upcoming theme. We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead.</p> <p><strong>This Week’s Theme <br /></strong></p> <p>Last week’s trading was something of a mystery. The “risk on” question got a definite “yes” with an increase in stocks and cyclical sectors combined with selling in bonds and defensive stocks like utilities. This happened despite rather soft economic news.</p> <p>While there is a fairly normal economic calendar, I expect the punditry to focus instead on the new record in stocks. In particular, most will be asking:</p> <p><strong><em>Can Energy Stocks Support the Market Breakout? </em></strong></p> <p><strong>Background </strong></p> <p>Over the last two months I have carefully raised and explored the “message” from various markets.</p> <ul> <li><a href="http://dashofinsight.com/weighing-week-ahead-will-crashing-oil-prices-change-feds-course/">Oil Prices</a> (12/13/14) </li> <li><a href="http://dashofinsight.com/weighing-week-ahead-message-bond-market/">The bond market</a> (1/11/15) </li> <li><a href="http://dashofinsight.com/weighing-week-ahead-message-fourth-quarter-earnings/">Earnings</a> (1/18/15) </li> <li><a href="http://dashofinsight.com/weighing-week-ahead-time-focus-europe/">Europe</a> (1/25/15) </li> <li><a href="http://dashofinsight.com/weighing-week-ahead-time-risk/">Risk On?</a> (2/8/15)</li> </ul> <p>These themes all gave due respect to the approach of seeking a “message from the market.” This is a favorite for most traders and pundits, but it often serves to explain the past. Few seem to find predictive edge from this approach, although it sounds good on TV.</p> <p>The alternative is to use economic data and corporate earnings to discover where markets may not be efficient. This helps to identify sectors and stocks that are mispriced. My own approach is to emphasize economic data to predict markets, as I explained in my <a href="http://dashofinsight.com/positions-2015-still-plenty-life-aging-bull/">2015 Annual Preview</a>. Last week the thesis seemed wrong, but the result was a winner. The jury is still out for this year, but it is a subject of continuing interest.</p> <p><strong>The Viewpoints </strong></p> <p>There is a wide range of opinion on the prospects for oil prices and energy stocks. Here are the main contenders:</p> <ul> <li>Energy stocks have not bottomed. <a href="http://www.marketwatch.com/story/oil-may-drop-by-more-than-30-a-barrel-from-current-levels-says-citi-2015-02-09">Citi warns</a> to look out for a “20 handle” on crude oil! </li> <li>Crude oil supply and demand are not that far out of balance, and the gap is closing. (<a href="http://online.barrons.com/news/articles/SB51367578116875004693704580451853687331456?mod=djemb_mag_h">Barron’s cover story</a> has this and contra viewpoints, stock ideas, MLP’s). FT on <a href="http://www.ft.com/intl/fastft/278161">falling rig counts</a>. </li> <li>Technicals say “no.” <a href="http://humblestudentofthemarkets.blogspot.com/2015/02/3-reasons-why-oil-prices-havent-bottomed.html">Cam Hui</a> digs deep, including this chart:</li> </ul> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/WTIC.png"><img alt="WTIC" src="http://dashofinsight.com/wp-content/uploads/2015/02/WTIC.png" width="600" height="263" /></a></p> <p>As always, I have some additional ideas in today’s conclusion. But first, let us do our regular update of the last week’s news and data. Readers, especially those new to this series, will benefit from reading the <a href="http://dashofinsight.com/background-on-weighing-the-week-ahead/">background information</a>.</p> <p><strong>Last Week’s Data</strong></p> <p>Each week I break down events into good and bad. Often there is “ugly” and on rare occasion something really good. My working definition of “good” has two components:</p> <ol> <li>The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially – no politics. </li> <li>It is better than expectations.</li> </ol> <p><strong>The Good</strong></p> <p>There was some good news last week.</p> <ul> <li><strong><em>Progress in Greece</em></strong>. While some will see the emerging agreement as temporary and merely delaying matters, this type of negotiated solution is actually quite typical. Each side does as little as possible. There is an opportunity for face-saving. The worst crisis outcome is averted. The best case is that the time will be used constructively, while the worst case implies revisiting the issue. Markets seemed less worried about Greece this time, but the progress was a small positive. </li> <li><strong><em>Eurozone GDP was positive and</em></strong> slightly higher than expectations at 0.3%. </li> <li> <p><strong><em>Earnings reports have been positive. </em></strong>It may not seem like it, but 78% of reporting S&P companies have beaten on earnings and 58% on sales. <a href="http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_2.13.15">(FactSet</a>). Some readers have accurately objected that these results reflect success against lowered expectations. FactSet reports that 80% of companies are reporting a negative outlook and that Q1 forward earnings have been cut more than any time since 2009. The question right now is whether estimates have fallen enough, and apparently they have. The earnings context has been very negative, and WTWA emphasizes the fresh news. That has been more encouraging of late. <a href="http://fundamentalis.com/?p=4518">Brian Gilmartin</a> continues his more upbeat take, writing as follows:</p> <blockquote> <p>The SP 500 is growing earnings on an operating basis, about 6.5% – 9.5% per year, the last few years, and I expect that to continue through calendar 2015.</p> </blockquote> <blockquote> <p>q1 ’15 earnings growth is currently expected to be -2%,  including Energy’s drag of a whopping -62%, so excluding that drag, the SP 500 earnings growth on an operating basis is expected at +4.4%</p> </blockquote> <blockquote> <p>Full-year 2015 earnings growth is expected at +2.4%, so excluding Energy’s drag of 53%, growth on an Ex-Energy basis is roughly +7.5%.</p> </blockquote> </li> <li><strong><em>Ukraine cease fire.</em></strong> I am scoring the cease fire as a positive. It was better than nothing and I give deference to the market reaction. With that in mind, the initial response from combatants was to increase hostilities. Few serious analysts have great hope for rapid progress. For investors, we are not even close to the reduction in reciprocal sanctions – the factor that would stimulate European growth and worldwide equity markets. Issues via <a href="http://www.brookings.edu/blogs/order-from-chaos/posts/2015/02/12-ukraine-peace-agreement-reached-pifer?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=16054877&_hsenc=p2ANqtz-_Gj4ZiBbM-H0BGvC1J8MN1EI8O2VU7io0PUC1WAfazK5C1EgFKef_pXEYqLqAI_1Bk8k-OFFhyyUQvqFG6ys-48b-fbw&_hsmi=16054877">Brookings</a>.</li> </ul> <p><strong>The Bad</strong></p> <p>The bad news included some significant economic reports.</p> <ul> <li><strong><em>West Coast port strike</em></strong> continues – a slowdown and a lockout. </li> <li><strong><em>Weekly jobless claims climbed. </em></strong>The 304K was a disappointing shift from the last two weeks. </li> <li><strong><em>Michigan Consumer Sentiment</em></strong> fell to 93.6, dropping from 98.1 and missing expectations. The <a href="http://www.advisorperspectives.com/dshort/updates/Michigan-Consumer-Sentiment-Index.php?referrer=feed43.com">chart from Doug Short is the best</a>, showing why this series is an important economic read.</li> </ul> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/dshort-michigan-sentiment1.png"><img alt="dshort michigan sentiment" src="http://dashofinsight.com/wp-content/uploads/2015/02/dshort-michigan-sentiment1.png" width="600" height="437" /></a></p> <ul> <li><strong><em>Farmland values</em></strong> are falling in the Midwest – for the first time in decades. Strong crops – lower prices. (<a href="http://www.wsj.com/articles/farmland-values-rise-0-8-in-st-louis-fed-district-1423753253">Jesse Newman WSJ</a>). </li> <li><strong><em>Retail Sales</em></strong> missed badly, even when you massage to exclude gasoline sales and include other adjustments. <a href="http://econintersect.com/pages/releases/release.php?post=201502124936">Steven Hansen at GEI</a> has the analysis. (<a href="http://imarketsignals.com/ims-business-cycle-index/">Scott Grannis</a> has the bright side). <a href="http://www.calculatedriskblog.com/2015/02/retail-sales-decreased-08-in-january.html">Calculated Risk</a> calls the result “OK” and provides this chart:</li> </ul> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/RetailJan2015.png"><img alt="RetailJan2015" src="http://dashofinsight.com/wp-content/uploads/2015/02/RetailJan2015.png" width="320" height="222" /></a></p> <p><strong>The Ugly </strong></p> <p>The human cost in Ukraine continues as fighting rages. (<a href="http://www.wsj.com/articles/fighting-rages-in-eastern-ukraine-as-cease-fire-deadline-approaches-1423833402">WSJ</a>).</p> <p><strong>The Silver Bullet</strong></p> <p>I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause, doing the real work to demonstrate the facts.  Think of The Lone Ranger. No award this week, but nominations are welcome. I am seeing plenty of bad charts, but little refutation.</p> <p><strong>Quant Corner <br /></strong></p> <p>Whether a trader or an investor, you need to understand risk. I monitor many quantitative reports and highlight the best methods in this weekly update. For more information on each source, <a href="http://dashofinsight.com/wtwa-indicator-snapshot/">check here</a>.</p> <p><img alt="" src="http://oldprof.typepad.com/.a/6a00d83451ddb269e201b7c74d51e8970b-pi" /></p> <p><strong><em>Recent Expert Commentary on Recession Odds and Market Trends <br /></em></strong></p> <p>Bob Dieli does a <a href="https://www.nospinforecast.com/">monthly update</a> (subscription required) after the employment report and also a monthly overview analysis. He follows many concurrent indicators to supplement our featured “C Score.”</p> <p><a href="http://recessionalert.com/our-service/">RecessionAlert</a>: A variety of strong quantitative indicators for both economic and market analysis. While we feature the recession analysis, Dwaine also has a number of interesting market indicators.</p> <p><a href="http://advisorperspectives.com/dshort/updates/ECRI-Weekly-Leading-Index.php">Doug Short</a>: An update of the regular ECRI analysis with a good history, commentary, detailed analysis and charts. If you are still listening to the ECRI (three years after their recession call), you should be reading this carefully. Doug has the latest interviews as well as discussion. Also see Doug’s <a href="http://www.advisorperspectives.com/dshort/updates/Big-Four-Economic-Indicators.php">Big Four</a> summary of key indicators.</p> <p><a href="http://imarketsignals.com/">Georg Vrba</a>: has developed an array of interesting systems. Check out his site for the full story. We especially like his <a href="http://imarketsignals.com/unemployment-rate-and-recessions/">unemployment rate recession indicator</a>, confirming that there is no recession signal. Georg continues to develop new tools for market analysis and timing. Some investors will be interested in his recommendations for <a href="http://www.advisorperspectives.com/dshort/guest/Georg-Vrba-140911-Vanguard-Fund-Dynamic-Allocation.php">dynamic asset allocation of Vanguard funds</a> and <a href="http://imarketsignals.com/2014/getting-the-most-from-tiaa-crefs-variable-annuity-accounts/">TIAA-CREF asset allocation</a>. He has added a method for <a href="http://imarketsignals.com/2014/trading-the-dividend-growth-stocks-of-the-vanguard-dividend-growth-fund-simulated-performance-of-ims-best10vdigx/">Vanguard Dividend Growth Funds</a>. I am following his results and methods with great interest. You should, too. This week Georg <a href="http://imarketsignals.com/ims-business-cycle-index/">updates his Business Cycle Index</a>, which made another new high.</p> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/BCI-Fig-1-2-12-2015.png"><img alt="BCI-Fig-1-2-12-2015" src="http://dashofinsight.com/wp-content/uploads/2015/02/BCI-Fig-1-2-12-2015.png" width="600" height="418" /></a></p> <p><a href="http://www.pragcap.com/the-misery-index-falls-to-an-8-year-low">Cullen Roche</a> takes a look at the misery index, now at an eight-year low. He even checks out how it would score using Shadow Stat’s “phony inflation” approach.</p> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/misery.png"><img alt="misery" src="http://dashofinsight.com/wp-content/uploads/2015/02/misery.png" width="504" height="312" /></a></p> <p><strong>The Week Ahead</strong></p> <p>It is a normal week for economic data.</p> <p>The “A List” includes the following:</p> <ul> <li>Initial jobless claims (Th). The best concurrent news on employment trends, with emphasis on job losses. </li> <li>Housing starts and building permits (W). Permits provide a good sense of future construction. </li> <li>Leading indicators (Th). Still seen by many as a good recession warning.</li> </ul> <p>The “B List” includes the following:</p> <ul> <li>FOMC minutes (W). Pundits will squeeze hard to find some new information. </li> <li>PPI (W). Still not important with overall inflation so low. Someday, but not yet. </li> <li>Industrial production (W). Volatile series is difficult to predict, but still important. </li> <li>Crude oil inventories (Th). Maintains recent interest and importance.</li> </ul> <p>There is plenty of FedSpeak. Important corporate earnings continue, although the season is winding down. There are regional Fed reports, but these are usually not important.</p> <p><strong>How to Use the Weekly Data Updates </strong></p> <p>In the WTWA series I try to share what I am thinking as I prepare for the coming week. I write each post as if I were speaking directly to one of my clients. Each client is different, so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs. It is not a “one size fits all” approach.</p> <p>To get the maximum benefit from my updates you need to have a self-assessment of your objectives. Are you most interested in preserving wealth? Or like most of us, do you still need to create wealth? How much risk is right for your temperament and circumstances?</p> <p>My weekly insights often suggest a different course of action depending upon your objectives and time frames. They also accurately describe what I am doing in the programs I manage.</p> <p><em><strong>Insight for Traders</strong> </em></p> <p>Felix has moved to a “bullish” posture for the three-week market forecast, but it continues to be a close call. The data have improved a bit, but are only slight better than the recent neutral readings. There is still plenty of uncertainty reflected by the high percentage of sectors in the penalty box. Our current position is still fully invested in three leading sectors, and we have gotten more aggressive. For more information, I have posted a further description — <a href="http://dashofinsight.com/felix-oscar/"><em>Meet Felix and Oscar</em></a>. You can sign up for Felix’s weekly ratings updates via email to etf at newarc dot com.</p> <p>As I have noted for five weeks, Felix continues to feature selected energy holdings. Felix is not just a momentum trader!</p> <p><strong><em>Insight for Investors </em></strong></p> <p>I review the themes here each week and refresh when needed. For investors, as we would expect, the key ideas may stay on the list longer than the updates for traders. Major market declines occur after business cycle peaks, sparked by severely declining earnings. Our methods are focused on limiting this risk. Start with our <a href="http://dashofinsight.com/tips-for-individual-investors/">Tips for Individual Investors</a> and follow the links.</p> <p>We also have a new page summarizing many of the <a href="http://dashofinsight.com/investor-fears/">current investor fears</a>. If you read something scary, this is a good place to do some fact checking.</p> <p>My bold and contrarian prediction for 2015 – that the leading sectors would lose and the laggards would win – looked a lot better over the last two weeks. If I am correct, there is a very, very long way to run for the cheapest market sectors – energy, technology, cyclicals, and financials.</p> <p><strong><em>Other Advice </em></strong></p> <p>Here is our collection of great investor advice for this week:</p> <blockquote> <p><strong>Stock and Sector Ideas </strong></p> </blockquote> <blockquote> <p>Growth and value ideas converging? Bill Nygren of Oakmark <a href="http://online.barrons.com/news/articles/SB51367578116875004693704580451810260784310?mod=djemb_mag_h">explains and also has some ideas</a>, including GOOG, MA, and WFM. More value plays with dividends from Dennis Ruhl of JP Morgan (via <a href="http://online.barrons.com/news/articles/SB51367578116875004693704580454240401306852">Barron’s</a>).</p> </blockquote> <blockquote> <p><a href="http://online.barrons.com/news/articles/SB51367578116875004693704580453991511475342">“Safe”</a> energy plays. “<a href="http://online.barrons.com/news/articles/SB51367578116875004693704580458132175279278">Aggressive</a>” plays. (Both from Barron’s).</p> </blockquote> <p><a href="http://www.marketfy.com/content/72566-shrinking-banks-expensive-liquidity-and-the-blues">Tim Melvin shows</a> why liquidity is over-rated for the individual investor. Regular readers know that I like his theme of regional bank stocks.</p> <p><a href="http://www.cnbc.com/id/102410612">Bill Miller</a> likes AMZN, AAPL and BABA.</p> <p>Watch out for <a href="http://www.investmentnews.com/article/20150207/FREE/150209936/reits-fall-hard-as-investors-fear-rising-interest-rates&utm_source=Morning-20150210&utm_medium=in-newsletter&utm_campaign=investmentnews&utm_term=text">falling REITs</a>.</p> <p><strong>Market Outlook </strong></p> <p><a href="http://theirrelevantinvestor.tumblr.com/post/110839165823/all-time-highs-investors-tend-to-overreact-to">Michael Batnick</a> revisits the listing of things people used to worry about instead of buying stocks. Enjoy his list of these golden oldies (the 1929 chart?) as well as this distribution of market returns over the last 89 years.</p> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/tumblr_njohlxh7bK1tvtougo1_1280.jpg"><img alt="tumblr_njohlxh7bK1tvtougo1_1280" src="http://dashofinsight.com/wp-content/uploads/2015/02/tumblr_njohlxh7bK1tvtougo1_1280.jpg" width="600" height="327" /></a></p> <p><a href="http://awealthofcommonsense.com/low-interest-rates-mean-stock-market-returns/">Ben Carlson shows</a> that rising interest rates are consistent with higher stock prices, using the table (below) of average annual returns. I <a href="http://dashofinsight.com/why-the-market-multiple-will-be-higher-in-2011/">explained the reason</a> for this in 2010, charting the curvilinear relationship between interest rates and stocks. Basically, extremely low rates are associated with intense skepticism about earnings and the economy. The move to normalize rates is positive for stocks.</p> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/int-rts-1.png"><img alt="int-rts-1" src="http://dashofinsight.com/wp-content/uploads/2015/02/int-rts-1.png" width="438" height="128" /></a></p> <p>The “fighting the Fed” part does not start for years. <a href="http://uk.businessinsider.com/how-stocks-move-around-first-fed-rate-hikes-2015-2?r=US">Sam Ro</a> has the data:</p> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/screen-shot-2015-02-09-at-7.39.25-pm.png"><img alt="screen shot 2015-02-09 at 7.39.25 pm" src="http://dashofinsight.com/wp-content/uploads/2015/02/screen-shot-2015-02-09-at-7.39.25-pm.png" width="600" height="368" /></a></p> <p><strong>Final Thought <br /></strong></p> <p>I do not know whether we have reached a bottom in energy prices, but I have identified two important themes.</p> <p>First, low US interest rates reflect a crowded leveraged trade. European bonds (for a change) represent the funding currency and US bonds the source of return. The interest rate margin is only about 1%, but the trade may be leveraged at 15-1. The currency risk in these trades is often hedge, but I suspect that many funds are “going commando” by relying on dollar strength.</p> <p>This trade is vulnerable to a weaker dollar or to rising US interest rates. If either or both of these occur, long-term rates could rise rapidly as the trade is unwound.</p> <p>Second, some hedge funds are investing in distressed bonds of energy companies and hedging by shorting the stocks. This puts continuing pressure on stocks, while providing a bit of support in the debt market. The hedge ratio is theoretical, since these are not convertible bonds. A significant increase in the stock prices could lead to short covering as the trade is unwound. This is difficult to measure and to play, but watching short interest in energy stocks is one idea. Bespoke charts it (<a href="http://www.businessinsider.com/wall-street-betting-against-oil-2015-2">via BI</a>).</p> <p><a href="http://dashofinsight.com/wp-content/uploads/2015/02/energy-sector-schort-interest-021115.png"><img alt="energy sector schort interest 021115" src="http://dashofinsight.com/wp-content/uploads/2015/02/energy-sector-schort-interest-021115.png" width="600" height="337" /></a></p> <p><strong>Risk and Reward </strong></p> <p>There is enough strength in the rest of the market that leadership from energy is not necessary for good returns. I want to reemphasize last week’s final thought. What is often thought of as safe has become risky.</p> <p><strong><em>Risk.</em></strong> Many investors wisely begin by thinking about risk. That is how I start each interview with a potential client. Everyone has the need to protect a portion of the investment portfolio, with the assurance that any losses will be modest.</p> <p>It is not always easy to identify safety. Last year’s most successful investments were bonds and bond proxies. The quest for safe yield has become a crowded trade. Those celebrating the success of bond mutual funds and their utility payouts should look at this week’s results. It is a very small taste of what will happen when interest rates return to more normal levels.</p> <p><strong><em>Reward.</em></strong> And we all need some investment reward, either to keep pace with inflation or to increase the retirement nest egg. <strong><em>There is excessive focus on arguments about the overall market valuation. There are plenty of cheap stocks and sectors. </em></strong></p> <p>Financials, technology, and consumer discretionary are all attractive and cheap.</p> <p><a href="http://dashofinsight.com/weighing-week-ahead-will-energy-stocks-support-market-breakout/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2FQUWJ+%28A+Dash+of+Insight%29">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-4097094130807253642015-02-14T17:55:00.001+01:002015-02-14T17:55:10.212+01:00weekend update<p>by Tony Caldaro</p> <p>REVIEW</p> <p>New all time highs. The week started at SPX 2055, gapped down to open the week, then hit 2042 late Monday afternoon. That was the low for the week. Tuesday the market gapped up, and then made higher highs for the rest of the week culminating with an all time high at SPX 2097. For the week the SPX/DOW gained 1.55%, the NDX/NAZ gained 3.00%, and the DJ World index gained 1.75%. On the economic front reports were not quite as rosy. On the uptick: wholesale/business inventories. On the downtick: retail sales, export/import prices, the WLEI, plus weekly jobless claims and the budget deficit increased. Next week, after the Monday holiday, we get reports on the NY/Philly FED, Housing and Industrial production.</p> <p>LONG TERM: bull market</p> <p>The 2009 Cycle wave [1] bull market continues to unfold as labeled. This five Primary wave bull market has only completed Primary waves I and II. When this occurred in 2011 Primary wave III began, and it has been underway ever since. Primary I divided into five Major waves, with a subdividing Major wave 1 and simple Major waves 3 and 5. Primary III appears to be alternating. It has had a simple Major wave 1, a quite extended and subdividing Major 3, and possibly a subdividing Major wave 5 is now underway.</p> <p><a href="https://caldaro.files.wordpress.com/2015/02/spxweekly1.png"><img alt="SPXweekly" src="https://caldaro.files.wordpress.com/2015/02/spxweekly1.png?w=640&h=485" width="640" height="485" /></a></p> <p>During Primary I the market displayed somewhat of an oddity in its five Major wave pattern. Major wave 1 was longer than both Major waves 3 through 5 combined. Normally, the first wave of any five wave sequence just does enough to kickoff the sequence. Then after a second wave decline, the third wave is the longest and thrust of the advance. Once this occurs, and after a fourth wave decline, the fifth wave can be any length. Primary wave III is displaying exaggerated but more normal characteristics. Major wave 1 did just enough to kick off Primary III. Then after a Major wave 2 correction, Major wave 3 advanced a near perfect Fibonacci 4.236 relationship to Major 1: SPX 2082 v SPX 2079. Also during the five Intermediate waves, that created Major wave 3, Int. wave v was a near perfect match to Int. wave i: SPX 2084 v SPX 2079. And, to our surprise, we have alternation now between the zigzag of Major 2 and the irregular flat of Major 4. Despite these lofty levels, wave patterns are actually starting to normalize.</p> <p>MEDIUM TERM: uptrend</p> <p>After making a new high in early-December the market entered a two month trading range which ended on the first trading day of February. We labeled the early-December SPX 2079 high as Major wave 3. Then the correction to SPX 1973 by mid-December Int. A, the uptrend to SPX 2094 in late-December Int. B, and the downtrend to SPX 1981 in early-February Int. C. This completed an irregular failed flat for Major wave 4. From that low the market has rallied 5.9% in less than two weeks to kick off Major wave 5.</p> <p><a href="https://caldaro.files.wordpress.com/2015/02/spxdaily3.png"><img alt="SPXdaily" src="https://caldaro.files.wordpress.com/2015/02/spxdaily3.png?w=640&h=485" width="640" height="485" /></a></p> <p>As noted in the previous section: once the third wave is longer than the first, the fifth wave can then be any length. Normally, after an extended third wave, like we observed during Major wave 3. The fifth wave might be equal to the first wave. Should this be the case, the minimum we should expect for Major wave 5 is SPX 2199 (i.e. 1981 + 218). The market closed at its high on Friday: SPX 2097. However, this has not been just any normal market. It has been a market driven by central bank liquidity in an attempt to avoid the deflationary effects of a Saeculum crisis cycle. Or, as most like to call it a deflationary Secular cycle. As a result we are expecting Major wave 5 to advance well beyond the one to one relationship to Major wave 1. However, we are not quite ready to post a potential price/time target until the DOW makes all time new highs. Maybe next weekend. Medium term support is at the 2085 and 2070 pivots, with resistance at the 2131 and 2198 pivots.</p> <p>SHORT TERM</p> <p>After the downtrend low at SPX 1981 two weeks ago, we started seeing five wave patterns for the first time since December. We noted the first five wave advance: 2010-1991-2040-2028-2050, and called it a potential uptrend. The market rallied to SPX 2072 that same week, then pulled back to 2055 on Friday. During that advance the market generated a WROC buy signal, also suggesting an uptrend was underway. Then after Monday’s SPX 2041 low the market took off to the upside again in a five wave pattern: 2058-2049-2071-2058-2097. The uptrend was confirmed and new highs were hit on Friday.</p> <p><a href="https://caldaro.files.wordpress.com/2015/02/spxhourly1.png"><img alt="SPXhourly" src="https://caldaro.files.wordpress.com/2015/02/spxhourly1.png?w=640&h=485" width="640" height="485" /></a></p> <p>Taking a conservative approach this uptrend may be all of Major wave 5, ending Primary III when it ends. Major wave 1 was only one uptrend too. Therefore, one could count the SPX 2072 high as the first wave, the SPX 2042 low as the second wave, and the current advance as part of wave 3. At SPX 2133 this third wave will equal the first wave, and this is close to our next OEW pivot at 2131. At SPX 2189 this third wave would have a 1.618 relationship to the first wave, which is close to our OEW 2198 pivot. Either way, the two pivots look like a good match for the internal structure of this uptrend.</p> <p>A more aggressive approach would be to suggest this uptrend is only Intermediate wave i of Major 5. We actually tend to favor this approach for reasons we will explain when we present the price/time targets. Short term support is at SPX 2058 and SPX 2049, with resistance at the 2131 and 2198 pivots. Short term momentum ended the week with a potential negative divergence.</p> <p><a href="https://caldaro.wordpress.com/2015/02/14/weekend-update-487/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-56867868964449631152015-02-14T17:35:00.001+01:002015-02-14T17:36:17.591+01:00SPY Trends and Influencers February 14, 2015<p>by <strong><a href="http://dragonflycap.com/author/admin/">Greg Harmon</a></strong></p> <p>Last week’s review of the <a href="http://dragonflycap.com/?p=52253">macro market indicators</a> suggested, heading into the week that the equity markets were coming off of a good rebound higher but showed signs of exhaustion Friday. Elsewhere Gold (<a href="http://stocktwits.com/symbol/GLD">$GLD</a>) looked to continue to pullback while Crude Oil (<a href="http://stocktwits.com/symbol/USO">$USO</a>) tried to move higher off of a bottom. The US Dollar Index (<a href="http://stocktwits.com/symbol/UUP">$UUP</a>) might continue to consolidate the rise, pulling back mildly, while US Treasuries (<a href="http://stocktwits.com/symbol/TLT">$TLT</a>) were biased lower in their uptrend.</p> <p>The Shanghai Composite (<a href="http://stocktwits.com/symbol/ASHR">$ASHR</a>) looked to continue its pullback from a major run higher and Emerging Markets (<a href="http://stocktwits.com/symbol/EEM">$EEM</a>) continued to consolidate in a bear flag in their downtrend. Volatility (<a href="http://stocktwits.com/symbol/VXX">$VXX</a>) looked to remain low but slowly rising slowing the wind behind equities to move higher. The equity index ETF’s <a href="http://stocktwits.com/symbol/SPY">$SPY</a>, <a href="http://stocktwits.com/symbol/IWM">$IWM</a> and <a href="http://stocktwits.com/symbol/QQQ">$QQQ</a>, were all in a consolidation pattern in the intermediate term, despite the moves higher last week. The IWM looked the strongest and ready to test the all-time highs this week while the SPY was close behind but the QQQ a bit weaker.</p> <p>The week played out with Gold continuing lower before a small bounce Friday while Crude Oil held another test of support in its bull flag. The US Dollar did continue the sideways consolidation while Treasuries continued down to new 6 week lows. The Shanghai Composite reversed back higher, in what could be a bear flag, while Emerging Markets looked messy in a tight range. Volatility made a new 2015 low as it neared a critical level. The Equity Index ETF’s saw this as good news, with the SPY and IWM making new all-time closing highs and the QQQ 14 year highs. What does this mean for the coming week? Lets look at some charts.</p> <p><strong>SPY Daily, <a href="http://stocktwits.com/symbol/SPY">$SPY</a></strong> <br /><a href="http://dragonflycap.com/2015/02/13/macro-week-reviewpreview-february-13-2015/spy-d-230/"><img alt="spy d" src="http://dragonflycap.com/wp-content/uploads/2015/02/spy-d1-600x450.png" width="600" height="450" /></a></p> <p>The SPY ended last week at the 50 day SMA with a Spinning Top doji, and Monday confirmed it higher. This also confirmed a break of the range since the start of the year. The rest of the week continued higher with Thursday a new all-time high close and followed up with another on Friday. The Bollinger Bands® have opened higher allowing the move to continue on the daily chart as the 20 day SMA turns up. The RSI on this timeframe is making a two month high as it continues into the bullish zone over 60. The MACD is also pointing higher.</p> <p>Moving out to the weekly timeframe sees the strong candle piercing the consolidation zone that has held the SPY since late October. The RSI is making a marginally higher high and rising. It never left the bullish zone. The MACD is about to cross up, also supporting more upside price action. There is resistance (maybe) at the spike to 212.97 with a Measured Move to 224 above. Support lower may come at 209 and 206.40 followed by 204.30. <strong>Continued Upward Price Action.</strong></p> <p><strong>SPY Weekly, <a href="http://stocktwits.com/symbol/SPY">$SPY</a></strong> <br /><a href="http://dragonflycap.com/2015/02/13/macro-week-reviewpreview-february-13-2015/spy-w-240/"><img alt="spy w" src="http://dragonflycap.com/wp-content/uploads/2015/02/spy-w1-600x450.png" width="600" height="450" /></a></p> <p>Heading into a shortened February Options Expiration week the equity markets look strong, breaking long consolidations to the upside. Elsewhere look for Gold to lower in the short term in the longer consolidation while Crude Oil consolidates, and may be ready to reverse higher. The US Dollar Index looks to continue in a consolidation range while US Treasuries are biased lower.</p> <p>The Shanghai Composite looks to continue to pullback in the uptrend and Emerging Markets look to hold in the bear flag, and might prove it a reversal higher. Volatility looks to remain subdued and now drifting lower, keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts all look strong on both the daily and weekly timeframes. If you had to pick a weakness then the gaps in the QQQ chart and move out of the Bollinger Bands® may signal short term exhaustion not seen in the SPY and IWM. Use this information as you prepare for the coming week and trad’em well.</p> <p><a href="http://dragonflycap.com/2015/02/14/spy-trends-influencers-february-14-2015/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-5097866946189872132015-02-14T17:33:00.001+01:002015-02-14T17:33:38.876+01:00The Week Ahead: Will Stocks Melt Up?<p>by Tom Aspray</p> <p>Greece leaving the euro, war in the Ukraine, and lousy Retail Sales data could not keep the stock market down last week. In this week’s technical review, I point out that several of the major averages have staged marginal upside breakouts, but most market analysts are not impressed.</p> <p>Instead the focus seems to remain on how much the stronger dollar has hurt earnings, which they feel do not justify the current high levels of the major averages. Others are worried about what type of ripple effect the low crude oil prices will have on the economy.</p> <p>Many may wait for the preliminary reading on GDP that is due at the end of the month. As I discussed in <a href="http://www.moneyshow.com/articles.asp?aid=GURU-41917&scode=021551"><em>Barron’s Roundtable-Too Cautious Like 2013?</em></a> the bullish panelists are only expecting gains of 10% or less. Many seem to think that the market needs a 15-20% correction to get in line with the fundamentals.</p> <p>Others remain convinced that, as one analyst said, “Stocks will be ‘ripped to smithereens,’” or that are already in a recession or bear market. In the most recent trading lesson <a href="http://www.moneyshow.com/articles.asp?aid=TEbiwkly08-42002&scode=021551"><em>Tell Tale Signs of a Correction</em></a> I took a look at what type of warning signs we typically see before a 15-20% market correction. I concluded that we currently do not see such warnings but that did not rule a 5-10% market correction.</p> <p>With this week’s strength, a 5-10% correction is looking less likely, but a convincing upside breakout will make it even less likely. I have not seen anyone discussing the potential for stocks to melt up from current levels. This could be a rally like we saw in 2013 when the <strong>Spyder Trust</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=SPY">SPY</a>) was up over 32%. If we get a confirmed breakout, a 3-6 week rally to significant new highs is likely, which would clearly surprise the majority.</p> <p>In a December column (<em><a href="http://www.moneyshow.com/articles.asp?aid=GURU-41585&scode=021551">Is the Bull Market Only Half Over?</a></em>) I discussed the following quote from Sir John Templeton, “Bull-markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” If we are in this type of bull market now, we have not yet reached the optimism phase.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru021315_A_large.gif&aid=GURU-42067&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_A_med.gif" /></a></p> <p>Click to Enlarge</p> <p>There are some technical reasons that I think we could see a much stronger rally from now than the market expects. They are based on breakouts above long-term resistance and what a market typically does after such a breakout.</p> <p>To look at these periods, I use quarterly close only charts of the S&P 500. The first example is what happened after the market top in 1929. The chart covers the period from 1929 to 1954 when the S&P 500 was finally able to surpass this key resistance, line a. It took the market twenty-five years to overcome this resistance and the market’s reaction was very powerful.</p> <p>The chart on the right covers the period from 1946-1981 as the S&P rose from the breakout level in 1954 at 30 to a high in 1972 of over 121. The S&P then formed a new long-term trading range using the 1962 and 1974 lows, along with the 1972 high. It took eighteen years before this trading range, lines c and d, was completed in 1980 (point 2).</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru021315_B_large.gif&aid=GURU-42067&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_B_med.gif" /></a></p> <p>Click to Enlarge</p> <p>One gets a different perspective on the 1980 breakout in the chart of the period from 1955 through 1997. After the breakout at point 2, the S&P 500 corrected back to the breakout zone in a fifteen month correction that took the S&P 500 down 23%. This market decline was accompanied by a high level of bearish sentiment. From the 1982 correction low, the S&P 500 started a multi-year uptrend that finally peaked in 2000.</p> <p>Another range developed using the 2000 and 2007 market highs and the intervening lows (lines e and f). This trading range lasted for thirteen years and was completed in the first quarter of 2013, point 4, as the S&P 500 moved decisively above the resistance at line e.</p> <p>I would expect that the completion of such a trading range would result in a significant multi-year rally. From the chart, it is clear that the S&P 500 has had little in the way of a correction since the upside breakout.</p> <p>If this breakout was the start of another longer-term bull market, then one or more significant corrections are likely before it is over. In fact, one is possible before the year is over, but the current technical evidence suggests it may come from significantly higher levels.</p> <p>Many investors continue to be fixated on if and when the Fed will raise rates. The next meeting is on March 18. As many of you have noticed in the past year, the stock market turns soft heading into the meeting, so would expect the uncertainty to grow as we get closer.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru021315_C_large.gif&aid=GURU-42067&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_C_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The weekly chart of the 10-Year T-Note yield shows that yields have risen since the end of January as support going back to early 2013, line b, was tested. There is strong resistance in terms of yield at 2.20%, so that is where any further rise in rates is likely to stall.</p> <p>There are no signs from the weekly studies that yields have bottomed as the <a href="http://www.moneyshow.com/articles.asp?aid=TEbiwkly08-25019&scode=021551">MACD</a> is still in a solid downtrend. I would expect to see more signs of bottoming before there is clear evidence that yields have really bottomed.</p> <p>There also has been quite a bit of interest in the gold market in 2015 as many gold bulls are proclaiming the start of a new bull market. Both gold and the gold miners have had a very nice rally as the <strong>Market Vectors Gold Miners</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=GDX">GDX</a>) is up 15% so far in 2015.</p> <p>I did not recommend buying as my long-term analysis did not indicate that a major low was in place. I was also concerned that gold typically tops out in February so that the rally might be short-lived. But I did miss a great trading opportunity.</p> <p>One technical tool that I have used for many years in the commodity markets is the Herrick Payoff Index (HPI) developed by the late John Herrick. Early in my career, I had the pleasure of meeting John at several conferences. The HPI uses open interest, volume, and price to determine whether money is flowing in or out of a commodity.</p> <p>I have featured it periodically in my daily columns and pointed out in <em><a href="http://www.moneyshow.com/articles.asp?aid=Charts09-41983&scode=021551">Crude Oil Money Flow Turns Positive</a></em> that the HPI was signaling positive money flow after the close on February 2, which favored a sharp rally in crude oil.</p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru021315_D_large.gif&aid=GURU-42067&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_D_med.gif" /></a></p> <p>Click to Enlarge</p> <p>Some of my readers have wondered what the HPI is telling me about the gold market. The weekly chart of Comex Gold shows that the rally topped out four weeks ago at the converging resistance, lines a and b. The next good weekly support is in the $1180-$1200 area with the monthly projected pivot support at $1195.</p> <p>The weekly OBV did not form any positive divergences at the lows and looks ready now to drop back below its WMA. The weekly HPI moved above the zero line on Friday, January 9 and gold rallied the following two weeks. The HPI has turned lower but is holding above its WMA and the zero line. This is positive. I will be watching the weekly HPI closely as the correction proceeds as the daily HPI (not shown) is currently negative.</p> <p>The economic calendar was light last week as Retail Sales were weak on Thursday, declining in January at the same rate as December. Some are attributing this to the possibility that consumers are spending more on services. Gasoline sales dropped 9.3% and are down over 16% in the past two months.</p> <p>The University of Michigan mid-month reading on consumer sentiment dropped back to 93.6 after the January reading of 98.1, but it is still in a positive trend. With the markets closed Monday, the first reports are on Tuesday with the Empire State Manufacturing Survey and the Housing Market Index.</p> <p>On Wednesday, we get Housing Starts, PPI, Industrial Production, and the FOMC minutes, which could cause some volatility Wednesday’s afternoon. On Thursday, we get the flash PMI Manufacturing Index as well as the Philadelphia Fed Survey. It looks like many of the manufacturing gauges have softened in the past few months, but it is still in a positive trend.</p> <p><strong>What to Watch</strong></p> <p>The stock market rally tried to stall on Friday, but then accelerated to the upside in the afternoon. The almost 2% gain in the S&P 500 and other major averages was a clear positive for the technical studies. I had argued a week ago in <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-41994&scode=021551"><em>Do Stocks Have Enough Juice to Breakout?</em></a> that such a breakout could occur.</p> <p>A few of the key market averages like the NYSE Composite had closed January below their quarterly pivots (<a href="http://www.moneyshow.com/image.asp?imgSrc=DailyCharts/charts09/TD011415_3_large.gif&aid=Charts09-41825&scode=021551">see Pivot Table here</a>) but reversed the next week to close back above them.</p> <p>The weekly technical studies are generally positive, but some of the daily studies—especially the OBV—are lagging. To further support the view that stocks can accelerate even higher from here, we need to see a close well above the all time highs in the next week or so. Such a move is consistent with the new weekly and daily highs in the NYSE Advance/Decline line.</p> <p>The defensive sectors like the utilities were hit hard last week, but <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-42019&scode=021551">the longer-term technical picture</a> discussed last week suggests the decline will turn out to be a buying opportunity, though the pullback could last a while.</p> <p>At the end of January, it was clear from the monthly charts (<a href="http://www.moneyshow.com/articles.asp?aid=charts09-41962&scode=021551"><em>Any Warnings from the Monthly Charts?</em></a>) that the major trend was positive. I have found that when you are in a choppy daily environment, relying on the longer-term charts is best.</p> <p>The AAII survey saw an increase in the bulls last week as the bullish % rose from 35.49% to 40%. The change in the bears was even more severe as the bearish % went from 32.42% to 20.33%.</p> <p>One industry group that I recommended in January was the semiconductors and we were able to get long the <strong>Market Vectors Semiconductor</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=SMH">SMH</a>) near the correction lows. I reviewed this group last week in <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-42034&scode=021551"><em>Are These Tech Stocks Ready for Lift Off?</em></a></p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru021315_E_large.gif&aid=GURU-42067&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_E_med.gif" /></a></p> <p>Click to Enlarge</p> <p>There have been some significant improvements technically as 5-day MA of the % of S&P 500 stocks <a href="http://www.moneyshow.com/articles.asp?aid=TEbiwkly08-31577">above their 50-day MAs</a> has completed its bottom formation, closing Thursday near the mean of 64.3%. Typically, it will now move towards the 80% level as more stocks move above their 50-day MAs.</p> <p>The weekly chart of the NYSE Composite shows that it completed its short-term flag formation, lines a and b, last week. The weekly <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-25975/Buy-Sell-or-Wait:-A-Way-to-Decide/">starc+ band</a> is at 11,305, along with the quarterly projected pivot resistance. The target from the flag formation is in the 11,500 area.</p> <p><a href="http://www.forbes.com/sites/tomaspray/2015/02/13/the-week-ahead-will-stocks-melt-up/6/">Follow Comments Following Comments Unfollow Comments </a><img alt="" src="http://i.forbesimg.com/assets/img/loading_spinners/16px_on_transparent.gif" width="16" height="16" /></p> <p><a href="http://www.moneyshow.com/image.asp?imgSrc=investing/Guru/WeekAhead/guru021315_F_large.gif&aid=GURU-42067&scode=021551"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_F_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The weekly <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-25814/One-Indicator-Stock-Traders-Must-Follow/">NYSE Advance/Decline</a> made new highs over the past two weeks as it continues to lead prices higher. The former highs have been overcome, yet the NYSE is still below the September high of 11,108. The daily A/D line (not shown) is in a strong uptrend and is well above its clearly rising WMA.</p> <p>The weekly <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-23770/OBV:-Perfect-Indicator-for-All-Markets/">on-balance volume (OBV)</a> has moved back above its flat WMA—which is a plus—but it is still well below the late December high. The daily OBV is also lagging.</p> <p><strong>S&P 500</strong> <br />The daily chart of the <strong>Spyder Trust</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=SPY">SPY</a>) shows that it dropped back to its rising 20-day EMA last Monday before turning higher  It has held above the quarterly pivot at $199.42 on a weekly closing basis but just by a fraction. The starc+ band and the resistance from the prior peaks, line a, is in the $212 area. The weekly <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-25975/Buy-Sell-or-Wait:-A-Way-to-Decide/">starc+ band</a> is at $215.58.</p> <p>As I noted last time, the daily close above $206.50 was significant.  There is minor support now at $207.24 with the rising 20-day EMA at $205.24.</p> <p>The daily S&P 500 A/D line broke through its resistance, line b, at the start of the month and could test its all time highs this week. The A/D line is above its now rising WMA.</p> <p><a href="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_G_large.gif"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_G_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-23770/OBV:-Perfect-Indicator-for-All-Markets/">daily on-balance volume (OBV)</a> is much weaker as—while it’s now above its WMA—it is still below the January highs. Stick with the <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-41994&scode=021551">previously recommended</a> long positions.</p> <p><strong>Dow Industrials</strong> <br /><strong>The SPDR Dow Industrials </strong>(<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=DIA">DIA</a>) is now very close to the all time highs at $180.56 as the Friday high was just a few cents lower. The daily starc+ band is at $183.08 with the weekly at $185.65.</p> <p><a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=DIA">DIA</a> has short-term support now at $177.50-$178.50 with the 20-day EMA at $176.98.</p> <p>The Dow Industrials A/D line has broken its downtrend, line h, but is well below its prior highs and is acting weaker than prices.</p> <p>The daily <a href="http://www.moneyshow.com/trading/article/31/TEbiwkly08-23770/OBV:-Perfect-Indicator-for-All-Markets/">on-balance volume (OBV)</a> is in a short-term uptrend and well above its rising WMA. The weekly OBV (not shown) will close above its WMA this week.</p> <p><strong>Nasdaq 100</strong> <br />The <strong>PowerShares QQQ Trust</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=QQQ">QQQ</a>) accelerated to the upside last week after it overcame the upper boundary of the trading range, line a. The daily starc+ band is at $107.56 with the upside target from the trading range in the $109-$111 area. The quarterly projected pivot resistance is at $115.62.</p> <p>The Nasdaq 100 A/D line moved through its downtrend, line c, at the start of February. The daily A/D line is still below the all time high at line b.</p> <p><a href="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_H_large.gif"><img alt="" src="http://graphics.moneyshow.com/investing/Guru/WeekAhead/guru021315_H_med.gif" /></a></p> <p>Click to Enlarge</p> <p>The daily OBV is back above its WMA, but is still acting weaker than prices. The weekly OBV (not shown) is close to moving back above its WMA this week.</p> <p>There is first good support at $104.58 with the now rising 20-day EMA at $103.58.</p> <p><strong>Russell 2000</strong> <br /><strong>The iShares Russell 2000</strong> (<a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=IWM">IWM</a>) moved well above the all time highs from late December in Friday’s session. The daily starc+ band is now at $123.74 with the quarterly projected pivot resistance at $132.98.</p> <p>The Russell 2000 A/D line is back above its WMA, but is well below its December high. The A/D line now has important support at line g. The daily OBV has barely moved with prices, while the weekly is back above its WMA but also below its previous highs.</p> <p>For <a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=IWM">IWM</a> there is some support in the $119.50-$120 area with the rising 20-day EMA now at $118.83. We are still long <a href="http://stocks.moneyshow.com/intershow.moneyshow/quote?Symbol=IWM">IWM</a> from our <a href="http://www.moneyshow.com/articles.asp?aid=Charts09-41994&scode=021551">January recommendation</a> and would stay with them.</p> <p><a href="http://www.forbes.com/sites/tomaspray/2015/02/13/the-week-ahead-will-stocks-melt-up/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-68459386608364842092015-02-13T14:48:00.001+01:002015-02-13T14:48:14.825+01:00Sizing up the next moves in the Market<p>by Marketanthropology</p> <p>Like any major move, the crash in crude oil was propelled by more than just one condition. Speculative positioning, production, demand - they all played a supporting role. And although the circumstances that led to its precipitous decline can be reverse engineered and neatly written to lay at the feet of a more conspiratorial and geopolitical commiserator - such as the Saudis, the reality is the currency markets likely played the biggest role over the past year and were instigated by conditions that set sail long before the Saudi's could even look to turn the screws. </p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSMlsfJdfPE1gK-9_9gMMMCxnx4vFYMA_L7RtqOGRNANtnX122gBx_aKu2hqtUf_CAVzXFx3E0lU9vV1Ll7sObFEWVlZYafR14X4a3qT4fo3Ek-elcd8wP23sykwo6KcjesYRg0pNatfLP/s1600/1.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSMlsfJdfPE1gK-9_9gMMMCxnx4vFYMA_L7RtqOGRNANtnX122gBx_aKu2hqtUf_CAVzXFx3E0lU9vV1Ll7sObFEWVlZYafR14X4a3qT4fo3Ek-elcd8wP23sykwo6KcjesYRg0pNatfLP/s1600/1.png" width="640" height="308" /></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggrvqyM_69VukJU-asx_weEVW-YHGnLk3vgWbwR83-yqxUgh0uCfpoo4EC1uf2IWR63tIz05mHVBfyPK9uuzK1evGPSnIHSoAR4CQ0nj3-LUriPKARPWFvfTG8FzjbFjUuiQj03zMQ1VgL/s1600/Screen+shot+2015-02-13+at+2.26.37+AM.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggrvqyM_69VukJU-asx_weEVW-YHGnLk3vgWbwR83-yqxUgh0uCfpoo4EC1uf2IWR63tIz05mHVBfyPK9uuzK1evGPSnIHSoAR4CQ0nj3-LUriPKARPWFvfTG8FzjbFjUuiQj03zMQ1VgL/s1600/Screen+shot+2015-02-13+at+2.26.37+AM.png" width="320" height="259" /></a></p> <p>As we have speculated, we believe the significant moves in the currency and commodity markets since last summer represent the blowoff tails from these respective trends. Our general belief is the two largest and most traded currencies in the world have been wagged by the divergent policy paths between the U.S. and Europe, which caused a strong disinflationary tailwind to develop in the markets since 2011 when the ECB raised its refinancing rate twice to 1.5% - while the U.S. maintained a zero interest rate policy, subsequently buttressed by additional rounds of quantitative easing. With the ECB finally finding religion and cutting rates below the U.S for the first time in a decade - as well as pulling up to the alter of QE, the torque in the currency markets from the differentials in policy paths should begin to back off.  <br />The blowoff move in the U.S. dollar index is butting up against long-term resistance at its 50% retracement level from the July 2001 high. Interestingly, this set-up was also where a long-term high was established in 2001 from the 50% retracement level from the February 1985 long-term high.     </p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYAACStdt6o3OFfZKiqhwBdGs9LAvLSpUXUYxm152J6CwXX2ESc2hhyWncpJsmGOnIK48LHCGxxdZK8f2no8ZSNYLgqY2YqVdyWP6NNQcvRr4DbdjHVoFTx13l20WhBsnlFL5_D7uuHkB9/s1600/2.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYAACStdt6o3OFfZKiqhwBdGs9LAvLSpUXUYxm152J6CwXX2ESc2hhyWncpJsmGOnIK48LHCGxxdZK8f2no8ZSNYLgqY2YqVdyWP6NNQcvRr4DbdjHVoFTx13l20WhBsnlFL5_D7uuHkB9/s1600/2.png" width="640" height="472" /></a></p> <p>As we showed last November, the dollar appears to be following with approximately a three year lag, the moves in yields. Similar to our expectations that 10-year yields will trough in a range between ~1.5 and 3.0% over the next several years, we still expect the dollar to follow the leading moves lower in long-term yields.</p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkyyefz_q86GRY7eUDPkxXCWVlbpS8I1WpuBn_8ZexV2PkiJs4gIqUICO2CHFXGpjCLT-0xItw8RFp_uNDV1RFqzsyxYgNNKycpYEyYnDBidVY-qEpHt85hXkiA1xSR2usexrkjPQ2hbrQ/s1600/12.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkyyefz_q86GRY7eUDPkxXCWVlbpS8I1WpuBn_8ZexV2PkiJs4gIqUICO2CHFXGpjCLT-0xItw8RFp_uNDV1RFqzsyxYgNNKycpYEyYnDBidVY-qEpHt85hXkiA1xSR2usexrkjPQ2hbrQ/s1600/12.png" width="640" height="372" /></a></p> <p>The disinflationary blowoff in the SPX:Oil ratio appears to be exhausting. Should the dollar finally turn lower, similar to our expectations with precious metals - we suspect the commodity will strongly outperform U.S. equities. </p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiodisNuNjCr2uPJ2qWqSrKDVVsxZSZMQvdAmbzof1cwO_QjyksBjlO4mniy2R4iJhvc0pLDeFZMumNBYCshlP1TZGkty2PvFOY4SvHCdkT6sgfSJAZA7O8J2qIJ1x1yz9qpUblV8W2VWcd/s1600/3.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiodisNuNjCr2uPJ2qWqSrKDVVsxZSZMQvdAmbzof1cwO_QjyksBjlO4mniy2R4iJhvc0pLDeFZMumNBYCshlP1TZGkty2PvFOY4SvHCdkT6sgfSJAZA7O8J2qIJ1x1yz9qpUblV8W2VWcd/s1600/3.png" width="640" height="460" /></a></p> <p>To date, oil made a cycle low 32 weeks after turning down last June. Should the low hold, the duration of the decline would be the same as in 2008/2009 and one week less than the move in 1985/1986. </p> <p>*The duration comparative was corrected to reflect an error we noticed on our last update that measured the move to the low in 2008/2009 to be 33 weeks. </p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4xMSDRYGkyLt4rUFDq8lsgxNnY9SKoFF4eOqEQezRd8Zike59dVIQldla6Xf_PyIscqhGTZD-VBtDxh5CSTOwH2fqf3zEmeblxwkzqSgthjdzlRl8hGySzAQObNeQc9McFBVqLMF1r73g/s1600/6.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4xMSDRYGkyLt4rUFDq8lsgxNnY9SKoFF4eOqEQezRd8Zike59dVIQldla6Xf_PyIscqhGTZD-VBtDxh5CSTOwH2fqf3zEmeblxwkzqSgthjdzlRl8hGySzAQObNeQc9McFBVqLMF1r73g/s1600/6.png" width="640" height="420" /></a></p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlgjdB2Dn_Swrj-OhYfp2JGieKEZCLw6oZkTVLwHeV0SW8D-VpP4hLJ40D7EdPrW0ZG-t3soLPsH7Rk30TqwjCb47UIedP9G0rS11_HIEUqz3OOl_ZL8mpUubgxjJjS4IDwZ1QPqZjnI0z/s1600/5.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlgjdB2Dn_Swrj-OhYfp2JGieKEZCLw6oZkTVLwHeV0SW8D-VpP4hLJ40D7EdPrW0ZG-t3soLPsH7Rk30TqwjCb47UIedP9G0rS11_HIEUqz3OOl_ZL8mpUubgxjJjS4IDwZ1QPqZjnI0z/s1600/5.png" width="640" height="420" /></a></p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhslGHUXeRL9T2S_kXzi1Tg538VOPK4LC4GnKrer7vTORxqEeb34ek5Skd5tcZp2TA24jeZq3ZCX52z9NY1JLQ97dqRtJUPahLsjK-twhh4gPJgTmGRk7WihtBfbepzj2pPaDySWbnLuz8L/s1600/Screen+shot+2015-02-13+at+3.33.00+AM.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhslGHUXeRL9T2S_kXzi1Tg538VOPK4LC4GnKrer7vTORxqEeb34ek5Skd5tcZp2TA24jeZq3ZCX52z9NY1JLQ97dqRtJUPahLsjK-twhh4gPJgTmGRk7WihtBfbepzj2pPaDySWbnLuz8L/s1600/Screen+shot+2015-02-13+at+3.33.00+AM.png" width="640" height="482" /></a></p> <p>Although we expect yields to be supported over the next several months, we do not foresee a sustained move higher out of the long-term yield trough that would invariably come with the Fed significantly raising rates. Despite yields remaining historically low over the past 6 years, we are reminded that it took over twice that time in the previous cycle to traverse the transitional divide between secular growth cycles. While the Fed has succeeded at gestating a rich valuation premium in the U.S. equity markets, it has largely been maintained at the expense of raising rates. As much as we expect another pulse of inflation to make its way through the system as the economy improves and Europe and China hit the gas, as Larry Summers rightfully mentioned in an interview just yesterday, "We're in an extraordinarily uncommon and unusual place ... so this is not the time for the traditional central bank playbook." </p> <p>Considering what happened in 1937 (which Summers mentioned yesterday as well) or the cyclical top in equities in 1946 that took shape after the Fed ended their extraordinary support of significant Treasury purchases, we suspect the Fed will be tested and squeezed between their dual mandates. In either case - and despite the daily headline concerns with deflation, we believe those assets closely tied to rising inflation expectations should outperform in the next move across the trough. </p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtSjxRrS_-mPqolw_srJJv6IB-7W7BYCKDJRK1xGbJUzsZOG8RUuwFBZWtjTm2LqHveFm_Crdc1idP1ZgZyl5Ak-MHE9RF8FYVTSvtRXZMkCYvmxCMYzcZG8CxZ-FlGmiaCn_6ol4LMDZC/s1600/14.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtSjxRrS_-mPqolw_srJJv6IB-7W7BYCKDJRK1xGbJUzsZOG8RUuwFBZWtjTm2LqHveFm_Crdc1idP1ZgZyl5Ak-MHE9RF8FYVTSvtRXZMkCYvmxCMYzcZG8CxZ-FlGmiaCn_6ol4LMDZC/s1600/14.png" width="640" height="386" /></a></p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzFMOp1V8RPWkvVQ2hMX0Y4xk3KzSUymNfkhs8RsaFFVq3NH1sVMeBkEZVCsA6pk1ZfdFKLJ-ahQSLUP-wZE1A8wPSPoUg9m-6VqXr-Esu_LtXm9tJKswDP6juHqIXIp8SIpcwwDIEp68E/s1600/15.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzFMOp1V8RPWkvVQ2hMX0Y4xk3KzSUymNfkhs8RsaFFVq3NH1sVMeBkEZVCsA6pk1ZfdFKLJ-ahQSLUP-wZE1A8wPSPoUg9m-6VqXr-Esu_LtXm9tJKswDP6juHqIXIp8SIpcwwDIEp68E/s1600/15.png" width="640" height="422" /></a></p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjYywNP0AvxN1v8RuS2ZCxOxMfe-wZciFEOvresMq66Hd7X4L6j5srHFxiso4CrfwIVpq14jyrVYxSuqw2XvkF6Lkk8yDzKjCnmv0mhXWdtNa_4ZsrCPAM-DI_T12Wkjx9yLog9tud4scJ/s1600/8.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjYywNP0AvxN1v8RuS2ZCxOxMfe-wZciFEOvresMq66Hd7X4L6j5srHFxiso4CrfwIVpq14jyrVYxSuqw2XvkF6Lkk8yDzKjCnmv0mhXWdtNa_4ZsrCPAM-DI_T12Wkjx9yLog9tud4scJ/s1600/8.png" width="640" height="630" /></a></p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjilQP953KvVmKVmm-AXQPpQkl43y0HMCD8rIBfvSWk2bjNb8-WYPojcQgjq4WWsw1P5jMfMCjDXu6YDItH1yQrjvd8g3S0itS3FVWOuz450HirgSpB9DVcNbxf9Jz4-EgJPZDhBfdLOGyx/s1600/9.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjilQP953KvVmKVmm-AXQPpQkl43y0HMCD8rIBfvSWk2bjNb8-WYPojcQgjq4WWsw1P5jMfMCjDXu6YDItH1yQrjvd8g3S0itS3FVWOuz450HirgSpB9DVcNbxf9Jz4-EgJPZDhBfdLOGyx/s1600/9.png" width="640" height="638" /></a></p> <p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinUaXhDSbI5hn3A4fnzGUxbrQwsuJfYy8hQ8X7xJAptbLHV7X7ZAERMSVc56vr2fR4BCfSbcH-2hRM7Ep2RIypL_QrsVY-8uFbr9O_sbRmQpZ1LiBo_7ASvsbIVpG9EDZV25f-urgDamN-/s1600/11.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinUaXhDSbI5hn3A4fnzGUxbrQwsuJfYy8hQ8X7xJAptbLHV7X7ZAERMSVc56vr2fR4BCfSbcH-2hRM7Ep2RIypL_QrsVY-8uFbr9O_sbRmQpZ1LiBo_7ASvsbIVpG9EDZV25f-urgDamN-/s1600/11.png" width="320" height="308" /></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2z0ZdTUplvRpkTXW6adQV1JV2Zp1QC7swUsQt72tPSU4PPlsVv8yxNEAorNq-YbJqgNHGdOf8a6Bu4Y6a6euMOIJNvndkUz5bhGZCIEruQ0TOXjRXytTWOuv0TWF6sgZTY3Tp7Ut5epEP/s1600/10.png"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2z0ZdTUplvRpkTXW6adQV1JV2Zp1QC7swUsQt72tPSU4PPlsVv8yxNEAorNq-YbJqgNHGdOf8a6Bu4Y6a6euMOIJNvndkUz5bhGZCIEruQ0TOXjRXytTWOuv0TWF6sgZTY3Tp7Ut5epEP/s1600/10.png" width="320" height="309" /></a></p> <p><a href="http://www.marketanthropology.com/2015/02/sizing-up-next-moves-in-market.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MarketAnthropology+%28Market+Anthropology%29">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-14543464104949197492015-02-13T14:18:00.001+01:002015-02-13T14:18:06.347+01:00Reflections From 4 Months of the SPY<p>by <strong><a href="http://dragonflycap.com/author/admin/">Greg Harmon</a></strong></p> <p>It is just 1 trading day shy of 4 months since the SPDR S&P 500 ETF (<a href="http://stocktwits.com/symbol/SPY">$SPY</a>) made its October low. Think about what has happened in that time. Japan expanded its Quantitative Easing. The ECB starting Quantitative Easing. Greece moved to the precipice of disaster….again. Putin has either invaded Ukraine, or freed them or something. Now we will help too (not sure which side). The US economy has been described as slowing, exploding and everywhere in between. We are going back into Iraq, gathering support to fight the Islamic State and shutting out embassy in Yemen. </p> <p>Through all this the SPY moved up to new all-time highs quickly in the standard ‘V’ recovery and has basically done nothing since Thanksgiving. But there are signs that all that is about to change.</p> <p><a href="http://dragonflycap.com/2015/02/13/reflections-4-months-spy/spy-vix/"><img alt="spy vix" src="http://dragonflycap.com/wp-content/uploads/2015/02/spy-vix-600x394.png" width="600" height="394" /></a></p> <p>The chart above shows the price action for the SPY since October low with the Volatility Index (<a href="http://stocktwits.com/symbol/VIX">$VIX</a>) as an area chart behind it. There is a lot to note on this chart. First the basics. The SPY peaks correspond to troughs in the VIX and when the VIX spikes the SPY has found a low. There is a negative correlation. </p> <p>Now notice the blue shaded Bollinger Bands® surrounding the SPY price candlesticks. Each bottom in the SPY has happened at the bottom of the Bollinger Bands. The highs do not have such a clear cut signal. But each of the 4 highs in the channel since the October low have happened with the upper Bollinger Band flat or falling. This move higher is different. That upper Bollinger Band is moving higher, allowing the price candles to move higher, not containing them.</p> <p>Some other things are different too. Since the start of the year, the RSI has been slowly trending higher. This momentum indicator is now breaking 60, a level that turns it bullish. The other momentum indicator, the MACD, has also reversed trend higher. These support more positive price action. Finally, look at the spiky VIX hills themselves. Notice that the valleys have all been lower than the current level. The VIX can go lower. Remember that stuff above about it being negatively correlated to the SPY? The SPY can go higher then.</p> <p>So the SPY has momentum on its side. Bollinger Bands opening to the upside and a VIX that could let it rise more. How high can it go? One measure is that the move into the consolidation box will be equal to the move out of the box. The two rising purple arrows show that and the higher one points to a level of 224 in the SPY. This does not mean it will happen or if it does it will happen quickly. But if the SPY does break the box to the upside, it has all the makings for this time to be different.</p> <p><a href="http://dragonflycap.com/2015/02/13/reflections-4-months-spy/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-12972715806344951542015-02-13T14:08:00.001+01:002015-02-13T14:08:35.458+01:00Greek Choice<p><img title="Click to close image, click and drag to move. Use arrow keys for next and previous." src="http://streettalklive.com/images/1dailyxchange/misc/Greece-Exit.jpg" /></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-85176309363397175522015-02-12T15:25:00.001+01:002015-02-12T15:25:43.964+01:00Crude at a low, King Dollar at a high? Surprise a few investors?<p>by Chris Kimble </p> <p><a href="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/crudeoilsmallbounceoffsupportfeb12.jpg"><img alt="crudeoilsmallbounceoffsupportfeb12" src="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/crudeoilsmallbounceoffsupportfeb12-675x303.jpg" width="608" height="273" /></a><strong> </strong></p> <p><strong>CLICK ON CHART TO ENLARGE</strong></p> <p>Crude Oil’s decline has been rare in a couple of ways, percentage decline and how quickly it took place.</p> <p>The decline took it down to support that has been in play since the 2009 financial crisis lows. Momentum is now the lowest its been in over 20-years.</p> <p>Could the low be in place in Crude?  It seems a little early to make that call.</p> <p><a href="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/dollarresistancecrudesupportgomersurprisefeb12.jpg"><img alt="dollarresistancecrudesupportgomersurprisefeb12" src="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/dollarresistancecrudesupportgomersurprisefeb12-675x378.jpg" width="608" height="340" /></a></p> <p><strong>CLICK ON CHART TO ENLARGE</strong></p> <p><a href="http://blog.kimblechartingsolutions.com/2015/02/crude-at-a-low-king-dollar-at-a-high-surprise-a-few-investors/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-6396269664297571262015-02-12T13:53:00.001+01:002015-02-12T13:53:00.631+01:00Timing (And Trading) Implied Volatility<p>by Trading the Odds</p> <p>The majority of readers will already be familiar with the fact that the CBOE Volatility Index<sup>®</sup> (VIX<sup>®</sup>) is not a tradable asset (it is just a number), and trading the VIX<sup>®</sup> in fact means trading its derivatives (futures) or even derivatives of derivatives (options on futures, ETFs/ETNs like XIV<sup>®</sup> – VelocityShares Daily Inverse VIX Short-Term ETN – and VXX – iPath® S&P 500 VIX Short-Term Futures™ ETN – ).</p> <p>Due the mean reverting nature of the VIX<sup>®</sup> (e.g. when bottoming out in the 10-12 range, a sudden spike is much more likely than a further drop, and conversly after a sudden spike to extended levels, a (quick) drop and/or slow decrease to regular levels is just a question of time and much more likely than a further rise), timing and trading the VIX<sup>®</sup> would of course be much easier than timing and trading its derivatives (and derivatives of derivatives) where one has to take into account (and overcome) time to maturity (futures, options), time decay, risk premium (futures, options, ETFs/ETNs), roll yield (ETFs/ETNs), term structure (contango/backwardation of futures), seasonalities (e.g. FED announcement days, the last days before maturity, …), among others.</p> <p>Some time ago <a href="https://marketsci.wordpress.com/">MarketSci</a> published an intersting article about timing (and trading) the VIX<sup>®</sup> ( <a href="https://marketsci.wordpress.com/2011/03/01/random-thoughts-re-trading-volatility-etfs-part-1/">Random Thoughts RE: Trading Volatility ETFs (Part 1)</a> ), utilizing a 10-day EMA (Exponential Moving Average) and a 10-day SMA (Simple Moving Average), going long (selling short) the VIX<sup>®</sup> index at the close when the 10-day EMA of the VIX<sup>®</sup> closed under (over) the 10-day SMA. Expectably (selling short an asset which is always bottoming out in the 10 – 12 range) – in contrast to going long the XIV<sup>®</sup> (selling short volatility) – the short side of the trade was more or less treading water over the course of the time frame under review (since 1990) while the long side went straight up (low risk / high reward).</p> <p>But as previously shown, with respect to a highly volatile asset like the VIX<sup>®</sup> , a 10-day moving average – even an EMA – is disadvantageous compared to a shorter-term moving average. And additionally – at least with respect to trading the Volatility Risk Premium Strategy – utilizing the CBOE Mid-Term Volatility Index ( VXMT<sup>®</sup> ) as a the repective trigger index instead of the VIX<sup>®</sup> may have some benefits again as well.</p> <p>To make a long story short:</p> <p>Image I shows the respective equity curves:</p> <p>(1)  VIX<sup>®</sup> with 10d EMA vs. 10d SMA: <strong>blue line</strong> (complies to <a href="https://marketsci.wordpress.com/2011/03/01/random-thoughts-re-trading-volatility-etfs-part-1/">MarketSci’s</a> posting) <br />(2)  VIX<sup>®</sup> with   3d EMA vs. 10d SMA: <strong>grey line <br /></strong>(3)  VIX<sup>®</sup> before 1/1/2008 , VXMT<sup>®</sup> after 1/1/2008 with   3d EMA vs. 10d SMA: <strong>red line</strong> <br />(4)  120% of VIX<sup>®</sup> | -20% of VXMT<sup>®</sup> with   3d EMA vs. 10d SMA: <strong>black line <br /></strong><sup>       *</sup> just VIX<sup>®</sup> before 1/1/2008 , VXMT<sup>®</sup> after 1/1/2008 <br />(5)  120% of VIX<sup>®</sup> | -20% of (VIX<sup>®</sup> + 10%) with   3d EMA vs. 10d SMA: <strong>green line <br /></strong><sup>       *</sup> before 1/1/2008, VIX<sup>®</sup> had been increased by 10% in order to replicate the VXMT<sup>®</sup></p> <p><a href="http://www.tradingtheodds.com/wp-content/uploads/2015/01/Total-Equity-Curve-1-16-20151.png"><img title="SPX-2012-02-17 no1" alt="" src="http://www.tradingtheodds.com/wp-content/uploads/2015/01/Total-Equity-Curve-1-16-20151.png" width="596" height="477" /></a></p> <p><strong>Image I – Total Equity Curve(s)</strong><strong> <br /></strong>(01/01/1990 – present)</p> <p>Some remarks are mandatory:</p> <p>(1) Any additions/changes in the respective underlying are only related to the exponential moving average ( e.g. 120% of VIX<sup>®</sup> | -20% of VXMT<sup>®</sup> ). The 10-day SMA remains unchanged and is always based on the VIX<sup>®</sup> index.</p> <p>(2) The <strong>blue line</strong> represents <a href="https://marketsci.wordpress.com/">MarketSci’s</a> 10-day EMA | 10-day SMA mean reversion strategy. The respective performance (hypothetically trading the VIX<sup>®</sup>) could’ve been easily boosted by utilizing a 3-day EMA instead of a 10-day EMA ( <strong>grey line</strong> ). Simply replacing the VIX<sup>®</sup> by the VXMT<sup>®</sup> index ( <strong>red line</strong> ) would be very disadvantageous (a least with respect to a mean reverting strategy) due to the fact that the VXMT<sup>®</sup> is regularly trading (significantly) above the VIX<sup>®</sup> index  ( contango ). Even better works a mixture of 120% VIX<sup>®</sup> minus 20% of VXMT<sup>®</sup> , regularly (artificially) reducing the index value ( <strong>black line</strong> ).</p> <p>(3) This very simple mean reversion strategy works best when applying this kind of ‘mixture’ right from the start, means first of all simulating VXMT<sup>®</sup> index values in the simplest way by adding a constant 10% premium to VIX<sup>®</sup> index values before VXMT<sup>®</sup> index values are available (1/1/2008), and secondly applying the previously mentioned formula again ( 120% of VIX<sup>®</sup> | -20% of  (VIX<sup>®</sup> + 10%).</p> <p>Image II shows the respective equity curves (long / short seperately) for <a href="https://marketsci.wordpress.com/">MarketSci’s</a> 10-day EMA | 10-day SMA (<strong>black</strong> / <strong>grey</strong>) and the 120% of VIX<sup>®</sup> | -20% of (VIX<sup>®</sup> + 10%) with 3d EMA vs. 10d SMA (<strong>green line</strong>) mean reversion strategy.</p> <p><a href="http://www.tradingtheodds.com/wp-content/uploads/2015/01/Total-Equity-Curve-Long-Short-1-16-2015.png"><img title="SPX-2012-02-17 no1" alt="" src="http://www.tradingtheodds.com/wp-content/uploads/2015/01/Total-Equity-Curve-Long-Short-1-16-2015.png" width="596" height="477" /></a></p> <p><strong>Image II – Total Equity Curve(s)</strong><strong> <br /></strong>(01/01/1990 – present)<strong> <br /></strong></p> <p>And last but not least – probably surprising the most – the respective Summation Index, simply representing the running total of net advances = raw quality of forecast (getting an index move right: +1 ; getting it wrong: -1). This image clearly shows that trading is NOT about being right or wrong (means just getting the direction of the move right), but all about making money (effectiviness and efficiency). <a href="https://marketsci.wordpress.com/">MarketSci’s</a> 10-day EMA | 10-day SMA (<strong>blue line</strong>) and the 120% of VIX<sup>®</sup> | -20% of (VIX<sup>®</sup> + 10%) with 3d EMA vs. 10d SMA (<strong>green line</strong>) mean reversion strategy are at equal level (at the end of the field !), but the latter strategy is doing things in an optimal way, being right when the VIX<sup>®</sup> index  moves big and losing small when being wrong (it ouperforms the 10-day EMA | 10-day SMA strategy by a factor of 1E+8) while the “VIX<sup>®</sup> before 1/1/2008 , VXMT<sup>®</sup> after 1/1/2008 with 3d EMA vs. 10d SMA” ( <strong>red line</strong> ) is at the top of the pack even after 1/1/2008, unfortunately winning small and losing big, depleting its net asset value since 1/1/2008 by 99.9%.</p> <p><a href="http://www.tradingtheodds.com/wp-content/uploads/2015/01/Summation-Index-1-16-20152.png"><img title="SPX-2012-02-17 no1" alt="" src="http://www.tradingtheodds.com/wp-content/uploads/2015/01/Summation-Index-1-16-20152.png" width="596" height="477" /></a></p> <p><strong>Image III – Summation Index</strong><strong> <br /></strong>(01/01/1990 – 10/15/2014)<strong> <br /></strong></p> <p>But how to take advantage of these findings will be subject to another posting. And may be some food for thought for your own analysis as well.</p> <p><a href="http://www.tradingtheodds.com/2015/01/timing-and-trading-implied-volatility/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-78592018153099075902015-02-12T09:41:00.001+01:002015-02-12T09:41:16.613+01:00Debt Doesn’t Matter …<p>by <a href="http://www.acting-man.com/?author=2650">Bill Bonner</a></p> <h5><strong>The Bad Analogy Debtberg</strong></h5> <p>Last week, McKinsey Global Institute reported that the world’s total debt levels were twice what we thought – $200 trillion, or about three times the planet’s total output.</p> <p>So, what a relief it was to discover… only a few hours later… that there was nothing whatsoever to worry about. Our concern was totally misplaced. It was nothing but a colossal misunderstanding or, as Nobel laureate economist Paul Krugman put it in the New York Times, a “bad analogy.”</p> <p>So now, we can go back to our Portuguese lessons here in São Paolo without a care.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/1-Global-Debt-Growth.png"><img alt="1-Global Debt Growth" src="http://www.acting-man.com/blog/media/2015/02/1-Global-Debt-Growth-1024x944.png" width="600" height="553" /></a></p> <p>Growth in global debt, per the latest McKinsey report on the non-deleveraging echo bubble era: Since Q4 2007, global debt levels have increased by a cool $57 trillion. Thankfully, Paul Krugman informs us that it “doesn’t matter”. Phew! Dodged a bullet there! – click to enlarge.</p> <h5><strong>Mastering the Essentials</strong></h5> <p>Are you curious about how much progress we are making in Portuguese? We didn’t think so. But we’ll tell you anyway. We pride ourselves on our ability to learn foreign languages quickly. Put us down in any city in the world… and after three days of intensive language lessons we’ll be able to walk into any bar in the city and order a beer. With confidence.</p> <p>So it is in São Paulo. We can’t conjugate the verb <em>conhecer</em> yet. We can’t pronounce it either. But we have mastered the essentials – “please,” “thank you” and “debt bomb.”</p> <p>Only now there’s no further need to think about debt. Especially here in Brazil. Even after 13 years of socialist government, public debt is only 60% of GDP. According to World Bank data, private credit was 70% of GDP as of the end of 2013 – or barely a third of America’s 192% level.</p> <p>Of course, Brazil used to be a basket case of epic proportions. At the start of 1980, for example, a hamburger cost about 4 cruzeiros (the Brazilian currency from 1942 to 1986). The same hamburger cost about 5 trillion cruzeiros by Christmas 1997.</p> <p>Brazil had to bring in a new currency – the real – and a new government to set things right. That’s not the kind of thing you forget overnight. Especially when there is a whiff of inflation in the air. Prices are already rising in Brazil at an annual rate of 7.1% – beyond the government target of 4.5% plus or minus two percentage points… and the highest rate since 2003.</p> <p>But why bother to think about it? “Deficits don’t matter,” said Dick Cheney. “Debt doesn’t matter either,” says Paul Krugman.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/2-Public-vs-private-debt.png"><img alt="2-Public vs private debt" src="http://www.acting-man.com/blog/media/2015/02/2-Public-vs-private-debt-1024x806.png" width="600" height="472" /></a></p> <p>In developed economies, the private sector has slightly lowered its debt load (by 2 percent of GDP), while public debt has exploded into the blue yonder as the banking system’s losses were socialized – click to enlarge.</p> <h5><strong>“Money We Owe to Ourselves”</strong></h5> <p>What a pity. All these years, we’ve been laboring under the illusion that these things mattered. Thank goodness Krugman has finally clarified things. From his piece in yesterday’s New York Times, modestly titled “Nobody Understands Debt”:</p> <blockquote> <p>“You can see that misunderstanding at work every time someone rails against deficits with slogans like “Stop stealing from our kids.” It sounds right, if you don’t think about it: Families who run up debts make themselves poorer, so isn’t that true when we look at overall national debt? No, it isn’t. An indebted family owes money to other people; the world economy as a whole owes money to itself. […] <br />Because debt is money we owe to ourselves, it does not directly make the economy poorer (and paying it off doesn’t make us richer).”</p> </blockquote> <p>Let’s see. Debt doesn’t make us poorer. So we don’t need to worry about it. But does it make us richer? Ah, there’s the question… For if it makes us neither poorer nor richer, why bother with it at all?</p> <p>What’s that you say, Paul, it CAN make us richer, if it is used intelligently? Isn’t that the whole point of lowering interest rates? Aren’t the lower rates supposed to encourage borrowing, spending… and greater wealth?</p> <p>So, there is something about debt that can have a real effect on the bottom line, isn’t there? Debt, invested properly in wealth-producing assets, can make both borrower and lender richer. And if that is so, isn’t it also likely that debt CAN make us poorer? Don’t we all know that is also true?</p> <p>You borrow money … you squander it … and you’re worse off. And so is the person to whom you owe the money. You can’t pay. He can’t collect. You both lose. It doesn’t matter whether you are a family or a nation. You’re all worse off. Debt <em>does</em> matter, after all.</p> <p><img alt="Princeton University Economics Professor Paul Krugman Interview" src="http://www.acting-man.com/blog/media/2015/02/r-PAUL-KRUGMAN-large570.jpg" width="600" height="251" /></p> <p>We are not surprised that Mr. Krugman of all people has dug up the old “we owe it to ourselves” canard. <em>This is patently untrue</em>.</p> <p>As Ludwig von Mises presciently wrote:</p> <blockquote> <p>“It is obvious that sooner or later all these debts will be liquidated in some way or other, but certainly not by payment of interest and principal according to the terms of the contract. <strong><em>A host of sophisticated writers are already busy elaborating the moral palliation for the day of final settlement</em></strong>. <strong><em>The most popular of these doctrines is crystallized in the phrase: A public debt is no burden because we owe it to ourselves. If this were true, then the wholesale obliteration of the public debt would be an innocuous operation, a mere act of bookkeeping and accountancy. The fact is that the public debt embodies claims of people who have in the past entrusted funds to the government against all those who are daily producing new wealth. It burdens the producing strata for the benefit of another part of the people. It is possible to free the producers of new wealth from this burden by collecting the taxes required for the payments exclusively from the bondholders. But this means undisguised repudiation.”</em></strong></p> </blockquote> <h5><strong>An Age of Wonders</strong></h5> <p>According to the McKinsey report, world debt has grown by $57 trillion since the beginning of the crisis in 2007… raising the level of debt to GDP by 17 percentage points.</p> <p>That – not real economic growth – explains why US stocks are so expensive. It is also why there is a house for sale in Florida for $139 million.And it’s why a single painting – which was worth almost nothing when put on the market in the late 19th century – recently changed hands at auction for $300 million.</p> <p>This reveals the true absurdity of Krugman’s “debt doesn’t matter” argument… and the futility of central bank policies since 2007. The financial crisis that began in 2007 came as a result of too much bad debt in the US housing and financial sectors.</p> <p>Americans couldn’t pay down that bad debt. They had to put on the brakes. Suddenly, all those mortgage-backed securities proved to be worthless… and every bank on Wall Street was threatened with bankruptcy.</p> <p>How did the feds respond? They stepped on the gas! Government debt grew by $25 trillion over the last seven years. And 8 out of 10 households (mostly out of the US) have more debt than they did in 2007.</p> <p>Meanwhile, China has quadrupled its total outstanding debt – from $7 trillion in 2007 to $28 trillion last year. China’s debt – approaching 300% of GDP – is now greater than that of the US or Germany. And half of it is collateralized by real estate. Yes, dear reader, we live in an Age of Wonders…</p> <p>We wonder what will happen to $200 trillion worth of world debt when the collateral gives way. We wonder why anyone would pay $300 million for a single painting by a dead Frenchman.</p> <p>We wonder when the Nobel Foundation will reconsider …</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/3-Debt-growth-comparison.png"><img alt="3-Debt growth comparison" src="http://www.acting-man.com/blog/media/2015/02/3-Debt-growth-comparison-718x1024.png" width="600" height="855" /></a></p> <p>Private and public debt trends in the US, the UK and the euro area compared. And no, “we” do not “owe the public debt to ourselves”. “We” owe it to the people who bought government bonds – who are a distinct group. Of course “we” were not asked if we really agreed with this debt expansion. No citizen includes his share of the public debt on his personal balance sheet, and yet, it has been contracted in his name. However, there is a deep-seated belied that the paternalistic State is in possession of some secret stash of wealth from whence these debts can be paid. Unfortunately this is not the case – click to enlarge.</p> <p>As Ludwig von Mises pointed out:</p> <blockquote> <p><strong><em>“The long-term public and semi-public credit is a foreign and disturbing element in the structure of a market society. Its establishment was a futile attempt to go beyond the limits of human action and to create an orbit of security and eternity removed from the transitoriness and instability of earthly affairs. What an arrogant presumption to borrow and to lend money for ever and ever, to make contracts for eternity, to stipulate for all times to come!”</em></strong></p> </blockquote> <p><a href="http://www.acting-man.com/?p=35781&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+acting-man%2FOGxh+%28Acting+Man%29">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-31689158966149988152015-02-12T09:37:00.001+01:002015-02-12T09:37:27.153+01:00Empire of Lies<p>by Charles Hugh Smith </p> <p><i>We are living in an era where a single statement of truth will drive a pin into the global bubble of phantom assets and debts, and the lies spewed to justify those bubbles.</i></p> <p><img border="0" src="http://www.oftwominds.com/photos07/pinochio9.jpg" align="right" /><b> <br /></b></p> <p><b>How many nations are blessed with political and financial leaders who routinely state the unvarnished truth in public?</b></p> <p><b> <br /></b></p> <p><b>Only two come immediately to mind: Greece and Bhutan:</b> Greece, where the new leadership repeatedly states the nation is bankrupt and <i>extend-and-pretend</i> policies are finished, and Bhutan, which explicitly rejects worshipping the false god of growth as measured by GDP (gross domestic product).</p> <p>Bhutan has opted to measure well-being not by bogus "growth" (digging holes and filling them, and other Keynesian Cargo Cult nonsense), but by Gross Domestic Happiness: <a href="http://www.oftwominds.com/blogapr14/GDP4-14.html">It's Time to Retire Gross Domestic Product (GDP) as a Measure of Prosperity</a> (April 18, 2014)</p> <p><b>In other words, with remarkably few exceptions, the global Status Quo is a vast Empire of Lies.</b></p> <p><b> <br /></b></p> <p><b>I have used the phrase <i>empire of lies </i>since 2007:</b></p> <p><b> <br /></b></p> <p><a href="http://www.oftwominds.com/blogoct07/magical-thinking.html">Empire of Lies, Kingdom of Magical Thinking</a>(October 30, 2007)</p> <p><a href="http://www.oftwominds.com/blogaug08/empire-of-lies8-08.html">Empire of Debt, Empire of Lies</a> (August 6, 2008)</p> <p>Ron Paul used the phrase in his book <a href="http://www.amazon.com/gp/product/0446537527/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0446537527&linkCode=as2&tag=charleshughsm-20&linkId=Q5MAAIY5LMD2L35L">The Revolution: A Manifesto</a> which was first issued in January, 2008, which means he probably drafted it many months or even years before.</p> <p><b>Regardless of its origin, the phrase perfectly captures the total dependence of the Status Quo on a constant spew of lies.</b> The complete and total dependence on lies was cemented on December 5, 1996, when Alan Greenspan's injudicious tidbit of truthtelling--Greenspan hinted that the stock market might be manifesting <i>irrational exuberance</i>--caused the stock market to plummet sharply.</p> <p><img border="0" src="http://www.oftwominds.com/photos2014/yellen7-14a.jpg" align="left" /></p> <p>Political and financial leaders took notice of the incredible fragility of the inflating financial bubble and vowed to never publicly state anything remotely close to the truth lest the entire contraption of debt, waste, fraud and bogus accounting collapse.</p> <p><b>What would happen if national and corporate accounts met the guidelines of strict accounting?</b> We all know the flim-flam falsehoods of fake numbers would vanish and the nakedness of our bankruptcy and low net profitability would be revealed.</p> <p>And what would be the immediate consequence of strict accounting? The collapse of asset bubbles predicated on the belief that the bogus numbers accurately reflected reality.</p> <p><b>What would happen if the unemployment rate was calculated on the number of full-time jobs and the number of people who are ages 18 to 65?</b> Given that only 44% of employable people have full-time jobs, the true unemployment number would not be a rosy 5.6%.</p> <p><a href="http://www.gallup.com/opinion/chairman/181469/big-lie-unemployment.aspx">The Big Lie: 5.6% Unemployment</a> (www.gallup.com)</p> <p><img border="0" src="http://www.oftwominds.com/photos2014/Janet-Yellen2a.jpg" align="center" /></p> <p><b>If corporate profit statements were stripped of accounting gimmicks, would the stock market continue rising at a rate that is five times the expansion rate of the economy? </b>Nobody dares speak the truth lest the equity market bubbles collapse.</p> <p><b>What would an honest accounting of government's unfunded liabilities for promised pensions and healthcare find?</b> <a href="http://www.theburningplatform.com/2015/02/10/fourth-turning-the-shadow-of-crisis-has-not-passed-part-two/">As Jim Quinn recently observed</a>, the most accurate such accounting for the U.S. government found $200 trillion in unfunded liabilities--a staggering sum that is roughly twelve times the entire U.S. GDP--a sum that will require far higher taxes and a dramatic reduction in promised pensions/healthcare.</p> <p>Does any political or financial leader dare speak this truth in public? What would happen if someone did declare that the monetary Emperor had no clothing?</p> <p>We are living in an era where a single statement of truth can act as a pin on the global bubble of phantom assets and debts, and the lies spewed to justify those bubbles. </p> <p><a href="http://charleshughsmith.blogspot.it/2015/02/empire-of-lies.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+google/RzFQ+(oftwominds)">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-27614567765764291962015-02-11T09:41:00.001+01:002015-02-11T09:41:54.849+01:00Europe's Greek Showdown: The Sum Of All Statist Errors<p><a href="http://davidstockmanscontracorner.com/europes-greek-showdown-the-sum-of-all-statist-errors/"><em> by David Stockman</em></a></p> <p>The politicians of Europe are plunging into a form of ideological fratricide as they battle over Greece. And “fratricide” is precisely the right descriptor because in this battle there are no white hats or black hits—-just statists.</p> <p>Accordingly, all the combatants—the German, Greek and other national politicians and the apparatchiks of Brussels and Frankfurt—- are fundamentally on the wrong path, albeit for different reasons. <em><strong>Yet by collectively indulging in the sum of all statist errors they may ultimately do a service. Namely, discredit and destroy the whole bailout state and central bank driven financialization model that threatens political democracy and capitalist prosperity in Europe——and the rest of the world, too.</strong></em></p> <p>The most difficult case is that of the German fiscal disciplinarians. Praise be to Angela Merkel and her resolute opposition to Keynesian fiscal profligacy and her stiff-lipped resistance to the relentless demands for “more stimulus”   from the likes Summers, Geithner, Lew, the IMF and the pundits of the FT, among countless others. At least the Germans recognize that if the EU nations are going devote 49% of GDP to state spending, including nearly a quarter of national income to social transfers, as was the case in 2014, then they bloody well can’t borrow it.</p> <p>Notwithstanding the alleged German led austerity regime, however, that’s exactly what they are doing. Germany has managed to swim against the surging tide of EU public debt, lowering its leverage ratio from 80% to 76% of GDP in the last four years. Yet the overall debt ratio for the EU-19 has continued to soar—meaning that the rest of the EU drifts ever closer to fiscal disaster.</p> <p><strong>Euro Area Government Debt As % of GDP</strong></p> <p><img title="quick view chart" alt="quick view chart" src="http://sdw.ecb.europa.eu/servlet/quickviewChart?SERIES_KEY=325.GFS.Q.N.I7.W0.S13.S1.C.L.LE.GD.T._Z.XDC_R_B1GQ_CY._T.F.V.N._T&start=01-01-2008&end=01-09-2014&trans=N&submitOptions.x=63&submitOptions.y=9" /></p> <p>Indeed, Germany’s frustration with the rest of the European fiscal sleepwalkers is more than understandable, as is its fanatical resolve not to give an inch of ground to the Greeks. Or as Merkel’s deputy parliamentary leader, Michael Fuchs told Bloomberg,</p> <blockquote> <p><strong>There is no way out” for Greece </strong>from its treaty obligations….. <strong>conditions set for Greece by The Troika (EU, ECB, IMF) for bailout funds “have to be fulfilled…. That’s it, very simple.”</strong></p> </blockquote> <p>This isn’t just teutonic rigidity. It’s actually all about the so-called capital contribution key—-the share of the EU bailout fund that must be covered by each member country in the event of a default.</p> <p>At dead center of Greece’s $350 billion of debt is $210 billion owed to the Eurozone bailout mechanism. Germany’s share of that is 27% or roughly $57 billion. Yet the prospect of tapping the German taxpayers for some substantial part of that liability in the event of a Greek default is not the main problem—-even as it would mightily catalyze Germany’s incipient anti-EU party.</p> <p>The real nightmare for Merkel’s government is that the next two largest countries in the capital key are on a fast track toward their own fiscal demise. So what puts a stiff spine into its insistence that Greece fulfill the letter of its MOU obligations is that if either France or Italy is called upon to cover losses, the whole bailout scheme will go up in smoke.</p> <p>There is not a snowball’s chance that the already faltering governments of either country would survive a capital call from the EU bailout funds. Indeed, the prospect of a partnership with Marine Le Pen and Beppe Grillo is undutedly what was on German Finance minister Schaeuble’s mind when this picture was snapped during his meeting with Varoufakis.</p> <p><strong>Just consider the delusionary partners Germany has at present—even before any Syriza-style election upheavals. In another of his patented outbursts of truth over the weekend, the Greek finance minister suggested that Italy was next and that it too, will discover “it is impossible to remain inside the straightjacket of austerity.”</strong></p> <p>That drew an immediate response from Italy’s Economy Minister, Pier Carlo Padoan, who tweeted to the world that Italy’s debt is <em><strong>“solid and sustainable”.  </strong></em></p> <p>Is he kidding? Italy’s GDP is dead in the water and has been since 2007. Yet it has continued to run massive budget deficits—about $75 billion this year alone–so its debt to GDP ratio has gone nearly vertical.</p> <p>Indeed, the very notion that the trend shown below has any resemblance to a “solid and sustainable” fiscal posture is indicative of  the sheer corruption of discourse that has been introduced by the Keynesian commentariat and the policy apparatchiks of the EU, IMF and Washington.</p> <p><strong>Their specious claim that all is well in Italy rests on the fact  that it has close to a “primary surplus” before interest payments.</strong></p> <p>So what! The undeniable fact is that Italy is borrowing heavily year after year to pay its interest, and is thereby impaling itself in a debt trap. That is, a situation so hopeless that no imaginable Italian government can stop the fiscal hemorrhage—- owing to the fact that the vast scale of the tax increases and spending cuts that would be necessary to reverse the debt spiral would be too toxic politically to accomplish.</p> <p><strong>And that’s the crucial point. The Keynesian modelers can always make the debt curve bend downward by assuming that the vigorous application of more of the same poison—deficit finance—can magically cause Italy’s “aggregate demand” and GDP to spring upwards and grow out from under the debt. But Europe’s fiscal crisis is no longer about whiteboard policy options; its about the absolute breakdown of fiscal governance.</strong></p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/italy-government-debt-to-gdp.png?s=itadebt2gdp&d1=20070101&d2=20151231" /></p> <p>To their great credit, the Germans do not believe in magic napkins of either the supply side or Keynesian varieties. Accordingly, the last thing they want to test is the capacity of Italian politicians to come up with even a tiny fraction of the approximate $37 billion of Greek debt they have guaranteed. For avoidance of doubt, here is the post-crisis trajectory of Italy’s real GDP—–a curve which is heading, not surprisingly, in a decidedly southward direction.</p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/italy-gdp-constant-prices.png?s=italygdpconpri&d1=20070101&d2=20151231" /></p> <p>Moreover, Germany’s nightmares as to who will ultimately pay the piper most surely do not end with the Five-Star Movement descending on Rome. France’s share of the Greek debt is appximately $42 billion. But like the case of Italy its economy is flatlining, having gained only 1% in real terms since its crisis peak.</p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/france-gdp-constant-prices.png?s=francegdpconpri&d1=20080101&d2=20151231" /></p> <p>The truth is, the French state has been meandering toward economic stasis and fiscal bankruptcy for several decades under governments of the left and right. With the state now consuming nearly 60% of GDP, it cannot reasonably expect any measureable economic growth. None. Capitalism doesn’t function when it is smothered by taxes, bureaucracy, cronyism and welfare state torpor.</p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/france-government-spending-to-gdp.png?s=francegovspetogdp&d1=19780101&d2=20151231" /></p> <p>So France is now experiencing a breakdown long in the making. Its rapidly deteriorating  fiscal condition has nothing to do with the financial crisis or the current flurry of so-called deflation. Its economy has finally succumbed to the destructive toll of statist economics, while its public debt continues to rise inexorably. Accordingly, it too has a debt to GDP burden that is rapidly heading beyond the 100% level.</p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/france-government-debt-to-gdp.png?s=fradebt2gdp&d1=20070101&d2=20151231" /></p> <p>So Germany’s unbending position on the Greek debt is understandable. <em><strong>If the default barrier is breached, it will start a EU-wide voter run on the parliaments.</strong></em> Even the Dutch would be stranded high and dry in the event of a capital call—-finance ministers Dijsselbloem’s lectures to Varoufakis about fiscal rectitude notwithstanding. Indeed, just how long would he and the current Dutch government remain in office after a capital call given the debt spiral already in motion?</p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/netherlands-government-debt-to-gdp.png?s=nlddebt2gdp&d1=20060101&d2=20151231" /></p> <p>In short, the EU outside of Germany and rounding error states like Finland has passed the point of no return on the fiscal front. No government that has to raise it share of the default cost will survive.</p> <p><em><strong>Germany will be left holding the entire bailout bag. And</strong></em> <em><strong>that serves them exactly right.</strong></em></p> <p>Merkel and her disciplinarians may be fiscally virtuous, but they are downright dense on the matter of central banking and the monetary order. In fact, they don’t have a clue about what capitalism in the financial system even means.</p> <p>To be sure, they jabber endlessly about the impermissibility of central bank finance of “state deficits”. But this whole ideology amounts to a ritualized and intellectually vacant assault on a monetary straw man. Germany went along with the ECB’s $1.3 trillion LTRO program, for instance, apparently because it did not involve the “purchase” of sovereign debt.</p> <p>In fact, the ECB injected into the European financial system this massive flow of cash made from thin air by advancing three-year discounts to EU banks that were strictly collaterized by the public debt of Germany, France, Italy, Spain etc. Accordingly, the credit risk assumed by the ECB was not that of BNP-Paribas, for example, but that of the French state bonds it hocked.</p> <p>Needless to say, that’s state financing by any other name. Moreover, this is not merely evidence of German hair-splitting hypocrisy on the monetary policy question.</p> <p>Had they really been committed to sound money they would never have permitted the ECB to go on the money printing rampage that occurred after German governments mesmerized by the “European Project” swapped the monetary quietism and rectitude of the Bundesbank for what quickly became the energetic, Keynesian macro-management regime of the ECB.</p> <p><strong><em>During the 10 years culminating in Draghi’s “whatever it takes” ukase of July 2012, the balance sheet of the ECB exploded by nearly 4X.</em> </strong>It matters not one wit that this eruption was based on sovereign collateral rather than “outright” purchases of government debt, and whether the underlying cash injections to the EU banking system were deemed to be permanent or multi-year “temporary” loans.</p> <p>Under today’s worldwide money printing mania, central bank balance sheets never shrink; they metastasize endlessly. The differences between outright purchases and repo-style transactions are merely technical.</p> <p>Like all central banks, the ECB has become a monetary roach motel right under Germany’s nose. The bonds go in, but they never come out. And as explained below, the recent nominal shrinkage of the ECB’s balance sheet, which Draghi has now vowed to reverse with full German concurrence, was an accounting illusion, anyway.</p> <p>The fact is, the ECB has been engaging in monetization on a massive scale from its inception. So doing, it has drastically distorted price discovery in the euro bond markets and thereby aided and abetted the fiscal profligacy that rages over the entire continent.</p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/euro-area-central-bank-balance-sheet.png?s=euroareacenbanbalshe&d1=20020101&d2=20121231" /></p> <p>As indicated above, the fact that the ECB’s balance sheet appeared to shrink sharply (by about 1 trillion euro) during the two years after Draghi’s ukase, and in consequence of the pay down of the LTRO discounts, was merely an exercise in monetary sleight-of-hand. The ECB’s massive haul of assets was just temporarily parked off balance sheet in the accounts of hedge fund punters and national bank fellow travelers.</p> <p>These speculators were more than eager to front run Draghi’s warranted word that the ECB would implicitly monetize any and all sovereign issues that might be required to keep the debt markets open to EU borrowers at the most congenial rates imaginable. Since this included, especially, all of the fiscal profligates of the periphery, the front-runners feasted heartily. Capturing the soaring value of the bonds they had funded on zero cost repo or deposits, they essentially rented their balance sheets to the Frankfurt apparatchiks at what amounted to obscene profits.</p> <p><strong>Yet none of the explicit bailout of Greek debt, or the defacto bailout of Italian, Spanish, Portuguese etc. debt via the Draghi ukase, would have happened had the ECB enabled honest price discovery in the debt markets during the phony boom years prior to the crisis. In effect, the ECB became a tool of the EU superstate, flooding member state ministries and parliaments with false prices on their sovereign debt.</strong></p> <p>Actually there was no reason for government bond rates to fall drastically during the decade run-up to the 2010 crisis. Prior to the recent downward blip of the euro zone CPI owing to the global oil and commodity crash, the trend level of inflation had not changed since the turn of the century. So in massively inflating its balance sheet by nearly 4X between 2002 and 2012, the ECB was the active agent that unleashed fiscal profligacy throughout the EU.</p> <p>Over that period, the euro zone CPI rose relentlessly at a 2.3% compound annual rate, while public leverage ratios climbed steadily. There was no reason, therefore, either by way of declining inflation or improving fiscal performance for bond rates to fall— in the periphery or the core for that matter.</p> <p>In fact, under a sound money regime, the ECB balance sheet would have grown hardly at all after the turn of the century. What the EU countries needed more than anything else was an honest bond market to bring home to its constituent governments the true cost of permitting public debt to spiral in the face of faltering growth and a relentless tide of crippling demographics. That is, a soaring population of social insurance recipients versus plunging birth rates and future labor force shrinkage.</p> <p>Stated differently, the EU states desperately needed a monetary regime that required their deficits to be financed out of private savings and capital inflows, not the central bank printing press. That would have caused a visible “crowding out” of private investment, rising interest rates and political opposition to fiscal free-booting in the EU capitals.</p> <p>Indeed, central bank financial repression and monetization of sovereign debt is the arch-enemy of Germanic fiscal rectitude. But the successive governments in Berlin had no clue and still don’t.</p> <p><strong>Not surprisingly, peripheral country interest rates during the post-2000 course of the ECB’s massive monetization became a snare and delusion.</strong> In this context, it doesn’t matter whether the ECB was actually buying Italian or Greek debt at the time (it wasn’t) or what the precise composition of its balance sheet eruption actually entailed. Debt market instruments are arbitraged and fungible. The adverse impact of the ECB drastic financial repression would have happened whether it was buying Italian debt, Spanish road bonds or Greek seashells.</p> <p><strong>Spanish 10-Year Bond</strong></p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/spain-government-bond-yield.png?s=gspg10yr&d1=19950101&d2=20091231" /></p> <p><em><strong>Italian 10-year Bond</strong></em></p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/italy-government-bond-yield.png?s=gbtpgr10&d1=19960101&d2=20091231" /></p> <p><strong>Greek 10-Year Bond</strong></p> <p><img alt="Historical Data Chart" src="http://www.tradingeconomics.com/charts/greece-government-bond-yield.png?s=gggb10yr&d1=19980101&d2=20081231" /></p> <p>Needless to say, there is always a counter-party. By the time the peripheral debt crisis reached fever-pitch in 2010-2012, European banks and insurance companies had gorged on the vastly mispriced debt that had been enabled by the ECB’s drastic financial repression. Accordingly, that was the moment when the scales should have fallen from Berlin’s eyes, and when its should have recognized that the cause of the crisis was not merely profligate Latin politicians, but the Keynesian money printers at the ECB which had tossed the Bundesbank’s sound money standards into the dustbin of history.</p> <p><strong>Instead, it stumbled into a monumental error.</strong> At the peak of the crisis, all of the big German, French and Italian banks were economically insolvent because the embedded mark-to-market losses on peripheral sovereign and private debts alike were orders of magnitude larger than the balance sheet equity of these institutions.</p> <p>In the case of Deutsche Bank, for instance, its $1.9 trillion balance sheet at the end of 2010 was balanced precariously on just $34 billion of tangible equity. In effect, it was leveraged at 56X. The big French banks were not much better. BNP-Paribas had $60 billion of tangible equity pinned beneath $2.1 trillion of assets including more than $600 billion of exposure to high risk loans and bonds.</p> <p>Yet the insane leverage ratios sported by the big EU banks were the product of another statist policy scheme in which the German fiscal conservatives were fully complicit. Namely, the regulatory regime known as risk-based asset accounting. Under the latter, sovereign debt is not counted for the purpose of computing capital adequacy.  In short, the ECB midwifed vast losses on drastically mispriced sovereign debt and the EU bank regulators said not to worry. It doesn’t count!</p> <p><strong>Outside the primitive world of Keynesian GDP flow mechanics where financial markets and balance sheets do not even exist, there are three extremely dangerous “givens” in the real world of finance.</strong></p> <blockquote> <p>The first is that banks are not free market institutions, but dangerous wards of the state that must be strictly regulated and supervised lest they gamble recklessly with depositor funds, investor capital and the various insurance and safety net schemes of the state.</p> <p>The second is that politicians must face the true economic cost of borrowing or they will be endlessly tempted to perpetuate their power and prerogatives by dispensing free lunch entitlements, subsidies and tax subventions to organized interest groups and crony capitalist plunderers. State borrowing has to hurt real world constituencies, not merely offend the requisites of fiscal virtue.</p> <p>Finally, financial markets are the vital core of capitalism, but by their very nature they attract gamblers and risk-takers. Accordingly, the most dangerous enemy of capitalist prosperity is not really the political left. Instead, it is the insuperable “moral hazard” that results when agencies of the state—-including the fiscal authorities and central banking branches alike—-bailout the mistaken wagers, soured bets and excesses of reckless greed that inexorably arise in the financial markets.</p> </blockquote> <p><strong>It goes without saying that the German fiscal disciplinarians ignored all three of these cardinal rules when they partnered up with the Keynesian apparatchiks in Brussels and Frankfurt to bailout the entirety of the soured peripheral country debt at 100 cents on the dollar. So doing, they committed an immense act of statist folly.</strong></p> <p>In the first instance, they stripped European financial markets of whatever vestiges of discipline and honest price discovery which then remained; allowed the financial executives and traders responsible for loading their institutions’ balance sheets with drastic losses to go unscathed; and taught the gamblers unleashed by the ECB and EU bailouts that the sky was the limit.</p> <p>No longer was their any risk of loss. In the event of even brief spats of market turmoil and modest sell-offs, the Germans made it clear that the EU superstate would come running with safety nets and subventions. The sorry spectacle of the hedge fund gamblers buying up Italian and Spanish bonds, and even Greek bank equities prior to Syriza’s emergence, and riding them for massive gains after Draghi’s ukase was the inevitable result of what amounts to the EUs quasi-nationalization of the sovereign debt markets.</p> <p><strong>Yes, this papered over the insolvency of Europe’s banking sector. But even on that score, the Germans are deeply culpable.</strong> There was no necessity whatsoever to shield banks and other investors from losses on their holdings of Greek and other peripheral debt. If they had wanted to protect purportedly innocent depositors and the financial system generally, they could have permitted Greece to tumble into bankruptcy back in 2010 and the losses to be taken on other peripheral debt in the years thereafter—and then recapitalized the banking system with public money, new leadership and an effective and honest regime to insure bank safety and soundness going forward.</p> <p>At the end of the day, the statist road chosen by the Germans has become a dead end. And it was the German government that ultimately choose the route of money printing and bank bailouts because no other EU country had the financial resources and credibility to make it happen.</p> <p>The massive transfer of bank and speculator losses to the peripheral nations has inherently resulted in the destruction of democratic sovereignty in the bailed-out nations. And this  extends far beyond the blatant usurpation that occurred when Brussels virtually deposed the elected governments of Italy and Greece during the heat of the crisis.</p> <p><strong>The fact is, the hated Troika “program” and MOU would not exist absent the statist depredations of the Germans.</strong> In its absence, by contrast, the elected governments of the bankrupt EU nations would have needed to design and impose their own “austerity” programs in order to compensate for the absence of borrowed cash and to earn their way back into the capital markets on the basis of their own credit profile.</p> <p>So Syriza is right to say that the devastated citizens of Greece do not owe Deutsche Bank and the rest of the bankers and punters a dime for the Greek bonds that their earlier governments imprudently issued and which the traders and managers of these institutions foolishly bought. The fact that German government caused these debts to be transferred to their own taxpayers is Berlin’s problem, not Athens’.</p> <p><strong>Indeed, that is the towering irony of the current fiasco. At the end of the day there will be no “mutualization” of the bailout debt of Greece or any other peripheral nation. It will all end up on Germany’s account because any other government which attempts to pay its share will end up like the Samaras government two weeks ago—that is, running off with the state’s internet passwords and office supplies in the middle of the night.</strong></p> <p><strong><u>So the bailouts were one of the greatest acts of fiscal folly of all time—performed by the only fiscal disciplinarians left in Europe.</u></strong></p> <p>There could now be only one greater act of statist folly left on Berlin’s docket. The German’s could loose their nerve, allow Greece to stay in the EU without adherence to its commitments, and embrace Syriza’s out-and-out socialist plan for a modern day “New Deal” in the entire EU funded by the European Investment Bank (EIB).</p> <p><strong>Well, that would be debt mutualization of an even more cancerous type.</strong> Surely by now Frau Merkel has learned her lesson and will decline the offer to jump from the fiscal frying pan she has created into the raging fires that the populist left in Europe will otherwise stoke-up if given the chance.</p> <p>In short, Germany has no choice except to let Greece go and to allow the entire EU bailout state to unravel, and then to pay the piper for its statist follies.</p> <p>The alternative is an all-powerful superstate in Brussels and Frankfurt that will necessarily extinguish whatever remains of political democracy and capitalist prosperity in Europe.</p> <p><strong>The latter would also permanently bury German taxpayers in other people’s debt. The fiasco in Greece has already proven at least that much.</strong></p> <p><a href="http://www.zerohedge.com/news/2015-02-10/europes-greek-showdown-sum-all-statist-errors">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-58507471180696338382015-02-11T09:39:00.001+01:002015-02-11T09:39:59.961+01:00VIX up 37% while SPX is flat, house of cards or house of fear?<p>by Chris Kimble</p> <p><a href="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/performancevixspyhouseoffearfeb10.jpg"><img alt="performancevixspyhouseoffearfeb10" src="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/performancevixspyhouseoffearfeb10-675x357.jpg" width="638" height="337" /></a></p> <p><strong>CLICK ON CHART TO ENLARGE</strong></p> <p>Do some investors think the market is a "House of Cards?" Humbly I don't know. It sure seems like something has them concerned, as fear levels remain lofty with the market making little progress up or down!</p> <p>Over the past 90-days the S&P 500 is pretty much flat (up less than 1%). During that time the <a href="http://finance.yahoo.com/q?s=^VIX">VIX (Fear Index) </a>remains elevated, as its been up the majority of the time the market has been going sideways.</p> <p><a href="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/spysidewayschopvixpennantfeb101.jpg"><img alt="spysidewayschopvixpennantfeb10" src="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/spysidewayschopvixpennantfeb101-675x314.jpg" width="638" height="297" /></a></p> <p><strong>CLICK ON CHART TO ENLARGE</strong></p> <p>The VIX looks to be creating a pennant pattern over the past few months. How this pattern resolves itself could point to which direction SPY heads out of this sideways chop.</p> <p><a href="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/vixreturnsafterup40percentin90daysfeb10.jpg"><img alt="vixreturnsafterup40percentin90daysfeb10" src="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/vixreturnsafterup40percentin90daysfeb10-675x434.jpg" width="638" height="410" /></a></p> <p><strong>CLICK ON CHART TO ENLARGE</strong></p> <p>This table highlights what happens to the VIX after its up 40% in 90-days when SPY is positive. Majority of the time 90-days out the VIX is lower.</p> <p>Falling fear can be positive for stocks and for <a href="http://finance.yahoo.com/q?s=XIV">XIV</a>. If the VIX falls during the next 90-days, XIV could do fairly weel. Let's see what happens from here!</p> <p><a href="http://blog.kimblechartingsolutions.com/2015/02/vix-up-37-while-spx-is-flat-house-of-cards-or-house-of-fear/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-81545679846936102882015-02-11T09:27:00.001+01:002015-02-11T09:27:59.942+01:00Some Thoughts on Greece's Exit from the Euro (Grexit)<p>by Charles Hugh Smith</p> <p><i>Greece has the potential to be the small domino that ends up toppling much larger dominoes.</i></p> <p><b> <br /></b></p> <p><b>A number of readers pointed out difficulties with my suggestion that Greece adopt the U.S. dollar (USD),</b> the primary one (as pointed out by Tyler Durden) being that Greece needs a weak currency for its re-set, not one that's strengthening.</p> <p><a href="http://www.oftwominds.com/blogfeb15/USD-Greece2-15.html">What Looks Crazy at First Might Be the Ideal Solution: Meet Greece's New Currency, the U.S. Dollar</a>.</p> <p>Others pointed out the unlikelihood of the Left-leaning leadership of Greece adopting the USD.</p> <p>Still others questioned the foreign-exchange (FX) mechanics of such a currency swap.</p> <p><b>Here is a preliminary semi-random list of thoughts on Greece's exit from the euro.</b></p> <p><b> <br /></b></p> <p>1. I make no claim to expertise in this matter--but I don't think there are any experts in this, as there is no real analog in recent history.</p> <p>2. This lack of analog (a nation with a small population and GDP leaving or being ejected from a much larger currency union) undermines all references to historical examples.</p> <p>3. No offense intended to the hardworking people of Greece, but the population and GDP (gross domestic product) of Greece is quite small. Greece's population is 11 million and its GDP is about $240 billion. The modest scale of Greece also undermines any analysis or projection based on historic precedents involving much larger economies.</p> <p>The European Union has over 500 million residents. Greece's population represents 2.2% of the EU populace.</p> <p>Ecuador, which uses the US dollar as its currency, has 15 million people.</p> <p>Los Angeles County, with slightly more than 10 million residents, has a <a href="http://laedc.org/our-services/business-assistance-layoff-aversion/doing-business-in-l-a-county/">GDP of $554 billion</a>, more than double that of Greece.</p> <p>4. A sovereign currency reflects not just the interest rate paid on its bonds, but on a host of other factors: fiscal and trade deficits/surpluses, currency pegs, national income, the vibrancy and resilience of the economy, the ability of the central state to manage the economy, private bank credit, transparency, costs of corruption, ease of doing business, how foreign investment capital is treated, the skill levels of its workforce and so on.</p> <p>5. Thus the Grexit discussion of currencies leads directly to all the larger questions of the Greek economy, political order and society.</p> <p>In other words, Greece faces not just a debt and currency crisis, but a systemic crisis of its social and political order, its machinery of governance, the legitimacy of its system of taxation and the flexibility of its economy. The currency and debt crises are reflections of these much deeper crises.</p> <p>These include:</p> <p>-- Does the structure of Greece's government lend itself to fragile coalitions that are incapable of implementing tough reforms?</p> <p>-- The need to modernize the practical machinery of governance: record-keeping, taxation policies, transparency, processing of permits and other regulatory necessities, etc.</p> <p>-- Does the central state have the wherewithal to effectively remake the culture to eliminate corruption as the default setting in the economy?</p> <p>6. All other things being equal, a nation with a weak but stable currency that makes all imports costly to its residents invites investment in producing more goods and services locally. The keys to being attractive to long-term investment of foreign capital are: </p> <p>-- A stable currency <br />-- A central state that isn't going to nationalize the investment the next election cycle <br />-- A stable, transparent regulatory and permit system <br />-- A stable, transparent system of taxation</p> <p>7. Some readers suggested Greece could peg a new drachma currency to the U.S. dollar as a means of establishing much-needed stability. The key to any peg's sustainability is setting the peg low enough that the market won't force the central bank to defend the peg, which is what triggered the Asian Contagion Crisis of the late 1990s.</p> <p>The nation establishing the peg must also avoid overborrowing, in essence free-riding the stability established by the peg, which is what brought down Argentina's dollar peg in the early 2000s.</p> <p>8. The Greek people have a simple choice: "do whatever it takes" to stay in the euro, which means living with austerity for decades to come, or leave the euro. <b>It's that simple. The majority of Greeks supposedly want to stay in the euro, but they must come to grips with the reality that the euro is a plutonium life preserver.</b> It's one or the other: permanent austerity as the cost of keeping the euro or no austerity and no euro. You can't have it both ways.</p> <p><a href="http://www.oftwominds.com/blogoct11/plutonium-life-preserver10-11.html">EU Leaders Throw Europe a Plutonium Life Preserver</a> (October 27, 2011)</p> <p>9. Though the mainstream financial media is running a full-court propaganda campaign promoting the idea that "Greece doesn't matter any more," the much-feared reality is that Greece has the potential to be the small domino that ends up toppling much larger dominoes:</p> <p><img src="http://www.oftwominds.com/photos2015/dominoes2-15a.png" align="center" /></p> <p><a href="https://www.youtube.com/watch?v=5JCm5FY-dEY">Domino Chain Reaction</a> (1:10 YouTube video)</p> <p><a href="http://charleshughsmith.blogspot.it/2015/02/some-thoughts-on-greeces-exit-from-euro.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+google/RzFQ+(oftwominds)">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-74170504085400077792015-02-11T09:05:00.001+01:002015-02-11T09:05:52.927+01:00What About the 1970s?<p>by Ben Carlson</p> <p>Every time I write about commodities being a poor investment option over the long-term, I get a few comments such as this one:</p> <p><em>Yeah, but what about the 1970s?</em></p> <p>The 1970s were probably one of the most difficult decades for investors in the traditional asset classes. Stocks and bonds posted positive returns, but those returns were completey consumed by the sky high inflation which reached as high as 13% a year by 1979. Short-term T-bills even outperformed both stocks and bonds because of the rising interest rates environment. Basically the entire decade was a mess. Except for commodities, that is.</p> <p>The S&P Goldman Sachs Commodity Index (GSCI) does actually go back to 1970. And the returns in the 1970s were impressive – up 21% annually. These returns should be put into context, though. The price of oil was up 870% from the OPEC oil embargo. Once the price of gold became unpegged in 1973 it rose nearly 1,000% for the remainder of the decade.</p> <p>Regardless, the 1970s did happen, caveats and all. If you look at the data on the GSCI starting in 1970 through 2014, commodities look like a pretty decent long-term asset class:</p> <p><a href="http://awealthofcommonsense.com/wp-content/uploads/2015/02/comm-1.png"><img alt="comm 1" src="http://awealthofcommonsense.com/wp-content/uploads/2015/02/comm-1.png" width="587" height="152" /></a></p> <p>Eight percent annual returns with little-to-no correlation to U.S. stocks (0.09 to be exact. What’s not to like? Sounds like the perfect portfolio diversifier. Now take a look at the returns from 1980 on:</p> <p><a href="http://awealthofcommonsense.com/wp-content/uploads/2015/02/comm-2.png"><img alt="comm 2" src="http://awealthofcommonsense.com/wp-content/uploads/2015/02/comm-2.png" width="586" height="153" /></a></p> <p>Commodities had nearly identical volatility characteristics in both periods, but after 1980 they returned less than ultra-safe cash equivalents. Cash-like returns with stock-like volatility for 35 years does not make for a very compelling long-term asset class.</p> <p>That’s not to say that commodities won’t have huge gains at times. In fact, the sentiment is so heavily skewed towards deflation, low growth and low interest rates forever right now that an unexpected rise in inflation in the coming years could lead to great returns in commodities for a time. You can see the volatility in commodities throughout the years by looking at the large gains and losses since 1980:</p> <p><a href="http://awealthofcommonsense.com/wp-content/uploads/2015/02/comm-32.png"><img alt="comm 3" src="http://awealthofcommonsense.com/wp-content/uploads/2015/02/comm-32.png" width="319" height="252" /></a></p> <p>There are obvious supply and demand issues to consider, but I think the real reason they’re so volatile is because they’re basically in constant competition with technology. This is why I always say that <a href="http://awealthofcommonsense.com/commodities-trading-investing/">commodities are trading vehicle</a>, not a long-term investing vehicle. There’s a huge difference. If you’re truly worried about a 1970s-style price shock, then commodities will probably be your best bet. The question is: Can you wait that long for a low probability event that may never happen?</p> <p>I think it makes sense to plan for a wide range of possible outcomes with any portfolio. But I’m not sure banking on 1970s-style inflation at all times is one of them. I’m not saying it’s not possible. Anything is possible. I’m just not sure you want to carve out a huge piece of your portfolio for a single situation like that which is unique historically. Almost 45% of the entire gains for the GSCI during the 45 year period from 1970-2014 were earned in the 1970s.</p> <p>Also, oil currently makes up around 47% of the GSCI index, with the remaining allocation spread fairly evenly among agriculture-based commodities and metals (gold is actually only 2% or so of the index). That’s a fairly big bet on the energy sector.</p> <p>There are alternatives that can protect investors from future inflation that are less volatile (TIPS) or offer a better return profile (REITs and even high quality dividend stocks) than commodities.</p> <p><a href="http://awealthofcommonsense.com/1970s/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-22958675708405336522015-02-11T09:01:00.001+01:002015-02-11T09:01:11.384+01:00US Stock Market: Trend Uniformity Still Absent<p>by <a href="http://www.acting-man.com/?author=6">Pater Tenebrarum</a></p> <h5><strong>Consolidation or Topping Pattern?</strong></h5> <p>From a technical perspective, the recent trading range in the US stock market is not really telling us much about what to expect next. It is possible to regard it as a drawn-out consolidation pattern prior to a renewed surge, but it is just as likely that it is in fact a distribution pattern.</p> <p>We have discussed <a href="http://www.acting-man.com/?p=34697">the sentiment backdrop</a> a number of times recently. Although the public exuberance that was visible in 2000 is largely absent, virtually every other measure of sentiment, whether in terms of positioning, surveys or of the anecdotal variety, seems stretched like rarely before. In many ways it is the exact opposite of what was seen near the 2009 lows. Anecdotal evidence includes items like the stock market valuation accorded to a company that owns four mobile grilled cheese dispensers in the OTC market (a cool $100m.), which is <a href="http://www.bloombergview.com/articles/2015-02-05/grilled-cheese-truck-as-an-irrational-exuberance-indicator">discussed in more detail by Barry Ritholtz here</a>.</p> <p> </p> <p>However, sentiment data have looked quite stretched for more than a year already (although they have reached their greatest extremes to date late last year and early this year). This hasn’t kept the market from advancing, but there may be some information in the fact that sentiment has not (at least not yet) turned cautious in the course of the recent trading range. From experience, trading ranges that are destined to be resolved by upside breakouts tend to involve a deterioration in bullish sentiment.</p> <p>Today we want to briefly look at trend uniformity and a few other simple technical data points though. It should be noted ahead of this exercise that since the market remains quite close to its highs, there are of course quite a few sectors and individual stocks that continue to look technically strong at the current juncture. The breakdown in energy stocks due to falling oil prices has gone hand in hand with a revival of sectors that looked weak previously, such as consumer discretionary stocks.</p> <p>Below is a weekly chart of the S&P 500. In recent months, a noticeably divergence between prices, the RSI and MACD has formed on a <em>weekly</em> basis. This is noteworthy mainly because it hasn’t happened in quite some time – the last time a strong weekly price/RSI divergence was recorded was just before the hefty correction in summer of 2011 commenced.</p> <p>This time, the divergence is more glaring, insofar as it has been put in place over a time period of more than a year:</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/SPX-weekly-RSIMACD-divergences.png"><img alt="SPX-weekly RSI,MACD divergences" src="http://www.acting-man.com/blog/media/2015/02/SPX-weekly-RSIMACD-divergences.png" width="600" height="584" /></a></p> <p>Weekly divergences between price and RSI and MACD in the SPX – click to enlarge.</p> <h5><strong>Trend Uniformity </strong></h5> <p>Next a brief look at trend uniformity, or rather, the lack thereof. Usually trend uniformity tends to break down as an advance reaches its late stages. The reason as far as we can tell is that market advances tend to near their end when money supply growth rates decline below a certain threshold (this threshold is unfortunately not fixed – if it were, it would be very easy to forecast stock market turning points).</p> <p>When this happens, there is not enough additional free liquidity available to bid up all, or most prices, so buyers tend to focus on an declining number of equities. The chart below shows three ratios: small caps (Russell 2000 Index/RUT) vs. big caps (SPX), tech stocks (NDX) vs. SPX and the broad market in the form of the NYSE Index (NYA) vs. the SPX.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/Ratios.png"><img alt="Ratios" src="http://www.acting-man.com/blog/media/2015/02/Ratios-772x1024.png" width="600" height="796" /></a></p> <p>The RUT-SPX, NDX-SPX and NYA-SPX ratio – click to enlarge.</p> <p>Over the past year, the performance of small caps and the broader market has steadily deteriorated against that of big caps. By contrast, big cap momentum stocks as represented by the NDX have for the most part outperformed the broader big caps sector. In short, trend uniformity has steadily broken down over the past 12 months. Lately all three trends have begun to stall out a bit. It remains to be seen whether the rush into momentum stocks late last year will prove to be meaningful, but a similar phenomenon has been observed near prior market peaks.</p> <p>Lastly, here is a chart of the NYSE index with its new high/new low differential (NH/NL) and the cumulative advance decline line (A/D line). The cumulative A/D line has recently made a new high; this is usually regarded as a positive, but it nevertheless represents a divergence with prices. Still, normally this measure tends to peak <em>ahead</em> of prices, and not after the price peak, so this indicator is still favorable to the bullish case at this point. The NH/NL differential meanwhile has deteriorated along with prices.</p> <p>The NYA is probably a much better representation of the average portfolio return than narrower indexes like the NDX or the SPX, as most stock market portfolios tend to be diversified across a large number of industries, sub-sectors and market caps.</p> <p>What makes this interesting is that although the broader market as represented by the NYA has put in what – so far anyway – appears to be a double top in July and September and has achieved no progress since the secondary peak in September, the enthusiasm of traders and stock market advisors has continued to increase since then.</p> <p>In other words, instead of bullish sentiment weakening a bit in line with the broad market’s lackluster performance, it seems to have followed the narrower indexes that have managed to put in marginal new highs since the October correction. It seems to us that this makes a further advance much less likely, at least on a medium term basis.</p> <p>In the short term, there is always the possibility of another marginal new high being reached, since the market is not too far away from new high territory and the major European markets have strengthened considerably recently (note however that this strength was not confirmed by peripheral European markets).</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/NYA.png"><img alt="NYA" src="http://www.acting-man.com/blog/media/2015/02/NYA-691x1024.png" width="600" height="889" /></a></p> <p>NYSE Composite Index (NYA) daily with NH/NL differential and the cumulative A/D line – click to enlarge.</p> <h5><strong>Conclusion:</strong></h5> <p>In light of the market’s valuation (in terms of the median stock, the market has never been more highly valued than now, not even at the year 2000 peak) and extremely lopsided sentiment, the divergences and the lack of trend uniformity discussed above should be seen as signs that caution continues to be warranted.</p> <p>On the other hand, US money supply growth still remains relatively brisk, as commercial bank lending has accelerated just as “QE” has been discontinued. As we have <a href="http://www.acting-man.com/?p=35664">recently pointed out</a>, in the euro area, <a href="http://www.acting-man.com/blog/media/2015/02/euro-area-M1-plus-growth-rate-ann.png">money supply growth is accelerating quite a bit</a> now, so there should soon be a revival in aggregate economic activity there. Over the past year or so, the European markets have tended to react positively to improving macro-data, and may therefore indirectly lend support to the US stock market.</p> <p>On the other hand, the monetary pumping game is getting a bit long in the tooth by now; if the economy’s pool of real funding has suffered substantial enough damage, it may no longer suffice to drive stocks even higher. All the additional pumping that is in the offing may well already be discounted in prices. We certainly wouldn’t ignore technical warnings because of it.</p> <p><a href="http://www.acting-man.com/?p=35767&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+acting-man%2FOGxh+%28Acting+Man%29">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-49496241472410594362015-02-09T20:22:00.001+01:002015-02-09T20:22:45.327+01:00Greece – The Moment of Truth Is Approaching Fast<p>by <a href="http://www.acting-man.com/?author=6">Pater Tenebrarum</a></p> <h5><strong>Game of Chicken Continues, EU Ratchets Up Pressure on Greece </strong></h5> <p>After the ECB has made Greek debt no longer eligible for repos (note that this mainly concerns government bonds however, bank bonds that have been “guaranteed” by the government will however <a href="http://www.ecb.europa.eu/press/pr/date/2013/html/pr130322.en.html">no longer be eligible after February 28 2015 either</a> – these amount to a quite large € 25 billion), fears of an intensifying bank run in Greece are growing. At the end of December, Greek banks owed about € 56 billion to the euro system. This is estimated to have jumped to about € 70 billion since then.</p> <p>These debts to the system have grown concurrently with a sharp decline in deposit liabilities since November last year, when it dawned on people that there might be an election. Unfortunately more up-to-date data aren’t available as of yet, but we will try to post them as soon as the Bank of Greece makes them available. However, there exist estimates regarding the extent of the decline in deposits since the end of December as well – very likely an additional € 15 billion has fled from the Greek banking system since then.</p> <p>Below are two charts showing assorted liabilities of the Greek banking system, with deposit liabilities shown separately in the second one:</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/1-Liablities-of-Greek-banking-system.png"><img alt="1-Liablities of Greek banking system" src="http://www.acting-man.com/blog/media/2015/02/1-Liablities-of-Greek-banking-system-1024x507.png" width="600" height="297" /></a></p> <p>Assorted liabilities of Greek banks – the boom and bust are nicely illustrated by this (assets have of course taken a similar course). “Liabilities to Bank of Greece” designate central bank credit to the banking system. This is estimated to have grown to around € 70 billion, replacing the approx. € 15 billion in deposit money that has likely been withdrawn since the end of December – click to enlarge.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/2-Deposit-liablities-Greek-banks1.png"><img alt="2-Deposit liablities, Greek banks" src="http://www.acting-man.com/blog/media/2015/02/2-Deposit-liablities-Greek-banks1-1024x395.png" width="600" height="231" /></a></p> <p>Deposit liabilities of Greek banks – total and domestic until the end of December 2014. A further € 15 bn. decline is estimated to have occurred since the end of December; this has been replaced with central bank funding. Some of this will take the form of “ELA” from February 11 onward, when the eligibility of Greek debt as collateral for ECB funding is withdrawn – click to enlarge.</p> <p>In the meantime, the Greek government has warned that it will soon run out money, as the EU has refused to accept further treasury bill issuance for bridge funding purposes (which would have bought the Greek government some more time). The government’s tax revenues have collapsed, as Greece’s citizens largely stopped paying taxes when it became clear that Syriza was likely to win the election; this is a case of election promises coming to haunt the government, as it promised to rescind numerous taxes. In the wake of all this, S&P has downgraded Greece’s debt. <a href="http://www.wsj.com/articles/greece-could-run-out-of-cash-in-weeks-1423212223">According to the WSJ</a>:</p> <blockquote> <p><strong><em>“Greece warned it was on course to run out of money within weeks if it doesn’t gain access to additional funds, effectively daring Germany and its other European creditors to let it fail and stumble out of the euro.</em></strong></p> <p>Greek Economy Minister George Stathakis said in an interview with The Wall Street Journal that a recent drop in tax revenue and other government income had pushed the country’s finances to the brink of collapse.</p> <p><strong><em>“We will have liquidity problems in March if taxes don’t improve,” Mr. Stathakis said. “Then we’ll see how harsh Europe is.”</em></strong></p> <p><strong><em>Government revenue has declined sharply in recent weeks, as Greeks with unpaid tax bills hold back from settling arrears, hoping the new leftist government will cut them a better deal. Many also aren’t paying an unpopular property tax that their new leaders campaigned against. Tax revenue dropped 7%, or about €1.5 billion ($1.7 billion), in December from November and likely fell by a similar percentage in January, the minister said.</em></strong></p> <p>Other senior Greek officials said the country would have trouble paying pensions and other charges beyond February.</p> <p>Greece has made no secret of its precarious financial position, but the minister’s comments suggest the country has even less time than many policy makers thought to resolve its standoff with Europe.</p> <p>Eurozone officials have asked Greece to come up with a specific funding plan by Wednesday, when finance ministers have called a special meeting to discuss the country’s financial situation.</p> <p><strong><em>The country needs €4 billion to €5 billion to tide it over until June, by which time it hopes to negotiate a broader deal with creditors, Mr. Stathakis said, adding that he believes “logic will prevail.” </em></strong><strong><em>If it doesn’t, he warned, Greece “will be the first country to go bankrupt over €5 billion.”</em></strong></p> <p>If the Greek government runs out of cash, the country would be forced to default on its debts and reintroduce its own currency, thus abandoning the euro. Most of the €240 billion in aid that Europe and the International Monetary Fund have pumped into the country would be lost.</p> <p><strong><em>Mr. Stathakis said Athens has asked for €1.9 billion in profits from Greek bonds held by other eurozone governments. In addition, the government wants the eurozone to allow Greece to raise an additional €2 billion by issuing treasury bills, he said.</em></strong></p> <p><strong><em>Both proposals clash with the rules governing Greece’s bailout and eurozone officials have dismissed them.</em></strong></p> </blockquote> <p> </p> <p><a href="http://www.bloomberg.com/news/articles/2015-02-06/eurogroup-chief-rules-out-bridge-loan-sought-by-greece">Bloomberg reports</a> that Jeroen Dijsselbloom let it be known that “<em>we don’t do bridge loans”</em>, which seems to have been one of the triggers provoking the S&P downgrade of Greece’s debt:</p> <blockquote> <p>“The new government’s request for a debt writedown has already been rejected, and Eurogroup chief <strong><em>Jeroen Dijsselbloem on Friday rejected a request for a short-term financing agreement to keep the country afloat</em></strong> while it renegotiates the terms of its bailout program.</p> <p><strong><em>“We don’t do” bridge loans, Dijsselbloem told reporters in The Hague, when asked about Greece’s request. “A simple extension is possible as long as they fully take over the program.”</em></strong></p> <p>The European Union’s latest rebuff raises the stakes for Greece’s new government. The next showdown is scheduled for Feb. 11 in Brussels, when Greek Finance Minister Yanis Varoufakis faces his 18 euro-area counterparts in an emergency meeting after Tsipras delivers his major policy address to lawmakers.</p> <p><strong><em>Standard & Poor’s lowered Greece’s long-term credit rating one level to B- and kept the ratings on CreditWatch negative.</em></strong></p> <p><strong><em>“Liquidity constraints have narrowed the timeframe during which Greece’s new government can reach an agreement with its official creditors on a financing program, in our view,” S&P said in a statement on Friday.</em></strong></p> <p>Greek stocks and bonds rebounded at the start of the past week after the government dropped its debt writedown demand. <strong><em>The trend reversed on Feb. 5, and the yield on 10-year bonds jumped 42 basis points to 10.11 percent on Friday, with the Athens Stock Exchange index falling 2 percent, after Dijsselbloem rejected the bridge financing.</em></strong></p> </blockquote> <p> </p> <p>Note the last sentence highlighted above: Greece’s financial markets got whacked once again after what transpired on Friday. Importantly though, the effect remained largely confined to Greece.</p> <h5><strong>Who Has the Better Cards?</strong></h5> <p>We have read a number of theories about the back and forth between the EU and the Syriza-led government last week. Some people are saying that Mr. Varoufakis (who is considered an expert on game theory) is deliberately using Greece’s weakness as a negotiating weapon, even going so far as to making the Greek government look weaker than it actually is.</p> <p>Others have pointed out that it has actually become far easier for the EU to adopt an extremely tough stance. Note in this context that Italy’s finance minister was not amused at all when Mr. Varoufakis remarked on Sunday that Italy’s debt is just as unsustainable as that of Greece, and that it would likely become a victim of contagion if Greece were to default:</p> <blockquote> <p>Italy’s minister of finance Pier Carlo Padoan was evidently not amused by Varoufakis’ comments on Italy’s € 2 trillion+ debtberg</p> </blockquote> <p>It seems to have dawned on Varoufakis that one of the reasons why the EU is prepared to yield to any of Syriza’s demands is probably that Greece’s stock and bond markets are the only financial markets that are really getting hit badly so far. Contrary to 2010-2012, Greece’s troubles are no longer rattling markets across Europe, presumably because the European commercial banking system’s exposure to Greece has declined sharply.</p> <p>Some 80% of Greece’s outstanding public debt are in the hands of the EFSF, the ECB and the IMF now. While quite a bit of interbank lending has been extended to Greek banks (some €19 bn.), this is mainly collateralized with EFSF bonds, so European banks are considered safe.</p> <p>Nevertheless, a Greek default would affect some €240 bn. in European and IMF aid to Greece, not an inconsiderable amount. If these funds have to be written off, the EFSF guarantees of other euro area members would be called in. As a result, debt-to-GDP ratios in the rest of the euro zone would jump noticeably. Apparently though, the other EU members are willing to take that risk – they are betting that Greece would be hit much harder by a default and an exit from the euro area. In short, they believe they will prevail in the game of chicken.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/3-ATG.gif"><img alt="3-ATG" src="http://www.acting-man.com/blog/media/2015/02/3-ATG-1024x622.gif" width="600" height="365" /></a></p> <p>The Athens General Index has once again turned down – click to enlarge.</p> <p><img alt="4-Greece 10-Year Bond Yield(Weekly)" src="http://www.acting-man.com/blog/media/2015/02/4-Greece-10-Year-Bond-YieldWeekly.png" width="606" height="580" /></p> <p>10 year Greek government bond yields, weekly – almost at a new high for move. 3 year paper currently yields about 18.15%.</p> <p>Greek bank stocks have not surprisingly taken the biggest hit. For instance, NYSE listed National Bank of Greece (NGB) is now down 99.83% from its 2007 high. This is presumably some kind of record (only one Cypriot bank and several of Iceland’s banks have suffered even more in the wake of the debt crisis, by going out of business altogether):</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/5-NBG-weekly.png"><img alt="5-NBG-weekly" src="http://www.acting-man.com/blog/media/2015/02/5-NBG-weekly.png" width="600" height="451" /></a></p> <p>NBG, weekly: down 99.83% from the peak in 2007 – click to enlarge.</p> <p>As the data below show, it was widely expected that Greece would finally pull out of its economic slump this year – however, this has now obviously become somewhat less certain.</p> <p><a href="http://www.acting-man.com/blog/media/2015/02/6-DWO-WI-Wirtschaftdaten-Griechland-db-Aufm.jpg"><img alt="6-DWO-WI-Wirtschaftdaten-Griechland-db-Aufm" src="http://www.acting-man.com/blog/media/2015/02/6-DWO-WI-Wirtschaftdaten-Griechland-db-Aufm.jpg" width="600" height="396" /></a></p> <p>Greek GDP and public debt – 2.9% GDP growth was hitherto expected in 2015. Given that this wouldn’t have involved an increase in government spending, it would have represented actual private sector type GDP growth, which contrary to the former is actually a sign of wealth creation – click to enlarge.</p> <p>So the EU is at best willing to offer some face-saving cosmetic changes to the Greek bailout deal, but resolutely refuses to countenance any delays or substantive changes to the agreement. On the other hand, the Syriza government finds it impossible not to present something substantive to its voters and is therefore digging its heels in as well. One thing is certain though, the “contagion gambit” has not worked this time around – at least not yet.</p> <p>Our guess is that the EU could probably be persuaded to “do bridge financing” after all, if the Greek government were to relent with respect to some, or rather most, of its demands. Markets probably won’t remain as unruffled as they currently are if no solution is found and Greece indeed ends up defaulting and abandoning the euro. The current relative calm is likely predicated on the idea that Greece’s government will ultimately have to give in. This could of course turn out to be a miscalculation.</p> <p>The losses due to a Greek default would presumably not be impossible for the EU to absorb. However, they would increase the pressure on other governments to impose more austerity type measures as well, once they cough up for the guarantees they have given to the EFSF. In short, the Greek government is not completely without leverage. It just doesn’t have as much leverage as it would have had at the height of the crisis three years ago. Back then, a Greek default could have sent several other much larger countries over the brink.</p> <h5><strong>Conclusion:</strong></h5> <p>The moment of truth is approaching fast for Greece.</p> <p><a href="http://www.acting-man.com/?p=35723&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+acting-man%2FOGxh+%28Acting+Man%29">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-11893756722823702592015-02-09T19:53:00.001+01:002015-02-09T19:53:56.108+01:00Greek Contagion? Spanish/Italian Bond Risk Surge Most In 4 Months<p>by <a href="http://www.zerohedge.com/users/tyler-durden">Tyler Durden</a></p> <p><a href="http://lh4.ggpht.com/-YQsPE9eHmj8/VNkCPorseHI/AAAAAAAAEdE/TOjJJvRWmSY/s1600-h/Image%25255B3%25255D.jpg"><img title="Image" style="border-top: 0px; border-right: 0px; background-image: none; border-bottom: 0px; padding-top: 0px; padding-left: 0px; border-left: 0px; display: inline; padding-right: 0px" border="0" alt="Image" src="http://lh3.ggpht.com/-X8Ato6MdTsA/VNkCQlU759I/AAAAAAAAEdM/74SNrj2xRtw/Image_thumb%25255B1%25255D.jpg?imgmax=800" width="573" height="559" /></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0tag:blogger.com,1999:blog-7881238057361218174.post-36191074777723392882015-02-09T14:49:00.001+01:002015-02-09T14:49:39.647+01:00Germany could top here, impacting S&P 500<p>by Chris Kimble </p> <p><a href="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/daxresistancefibextensionfeb9.jpg"><img alt="daxresistancefibextensionfeb9" src="http://blog.kimblechartingsolutions.com/wp-content/uploads/2015/02/daxresistancefibextensionfeb9-675x314.jpg" width="650" height="302" /></a></p> <p><strong>CLICK ON CHART TO ENLARGE</strong></p> <p>When it comes to discussing hot stock markets in 2015, <a href="https://finance.yahoo.com/q?s=^GDAXI&ql=1">Germany's DAX index</a> would be part of a conversation. So far the year the DAX index is <a href="https://finance.yahoo.com/echarts?s=%5EGDAXI+Interactive#%7B%22range%22%3A%22ytd%22%2C%22scale%22%3A%22linear%22%2C%22comparisons%22%3A%7B%22%5EGSPC%22%3A%7B%22color%22%3A%22%23cc0000%22%2C%22weight%22%3A1%7D%7D%7D">up around 11%</a>, making it one of the best performing stock index's in the world.</p> <p>The rally in the DAX index now has it facing the top of a multi-year resistance channel and up against a Fibonacci 161% extension level based upon its 2007 highs and 2009 lows. </p> <p>Despite the strong rally in the DAX, momentum has been creating a series of lower highs over the past year, similar to what it did in 2007 and 2011. </p> <p>A DAX breakout here could be a plus for the S&P 500 and a top here could be a negative influence. Investors might want to keep a close eye on this white hot index because what it does from here could send a clue to what the S&P 500 could do going forward.  </p> <p><a href="http://blog.kimblechartingsolutions.com/2015/02/germany-could-top-here-impacting-sp-500/">See the original article >></a></p> Michele Giardinahttp://www.blogger.com/profile/18099736764952438594noreply@blogger.com0