Alex Trias

Friday Roundup: Commodities, Emerging Markets

How to explain Friday?
(1) Stock market is forward looking, has already discounted high unemployment and sees brighter days ahead that the rest of us mortals cannot see.
(2) US Macroeconomics have become irrelevant to US equities prices because US companies are basically all multinationals.
(3) As with every bubble, this one is widely acknowledged, but investors are happy to buy as long as they think a greater fool is out there, and they can hit the sell button fast enough when the end comes.
(4) Markets are above 65 day exponential moving average, so traders buy. Period, simple as one-two-three.
(5) Central banks are pumping liquidity and telling their client banks to manipulatively bid up asset prices in the hopes of averting deflationary depression.
(6) Buy the rumor, sell the news has now turned into sell the rumor, buy the news.
(7) Maybe central banks are pumping Zoloft and Welbutrin into the water supply? Hey, come to think of it, I'm feeling pretty chipper... maybe I'll go buy some stocks.
(8) Some combination of (1) through (7).

Thursday Outlook: Commodities, Global Markets

No anomoly. Traditionally, these things exhibit inverse correlation as investors roll out of treasuries and into stocks, but that's not what you'd expect in a scenario of quantitative easing. As investors dump risk-free assets and pig out on stocks, the Fed steps in and buys Treasuries, artificially propping up the price of Treasuries and pumping dollars into the system which, in turn, drives down the price of dollars. That more or less describes why you're seeing stocks go up, Treasuries standing pat, and the dollar swooning.


On Nov 05 07:34 AM Gerry Sullivan wrote:

> The biggest anomaly in this stock/gold/commodity/f... currency rally
> is that US Treasury interest rates have stayed so low. The 2, 3,
> 5, 7, 10, and 30 year Treasury securities are all trading at premiums
> to their most recent auctions.
>
> With high and rising unemployment the Fed can create money, boost
> asset prices, and still keep rates down at historic low levels. In
> spite of what they say, this is clearly what they want to do.
>
> The Treasury and the Fed know that only inflation will solve our
>
> most immediate economic problem: the sluggish economy and resultant
> high unemployment. Inflation will eventually boost real estate prices
> which will help save the banks.
>
> Stocks and commodities are going along for the ride.

Thursday Outlook: Commodities, Global Markets

Great article today, David. Just two comments for you. First, on a technical note, if you looked at the 50 day simple moving average, you'd probably a little worried that the broader market in the USA is looking rather sick indeed. We sliced through the 50 day like a hot knife through failed-support butter, and are now stubornly observing this area as resistance. The 50 day simple moving average almost shouts "next leg lower!" On the other side, the markets have rebounded respectably off the 65 day exponential moving average - pretty garden variety bull market stuff, that. Add that to the fact we've seen the NYSI drop to levels which, in recent history, coincided with sharp moves higher, and you get the picture. So, question: should we believe the 50 day simple moving average or the 65 day exponential moving average?

Second comment - your point on the global liquidity/ asset-price bubble is well taken. As you are probably aware, Nuriel Roubini, Wilbur Ross and other knowledgeable figures have been very vocal in expressing the same concerns. And as with all bubbles, we're seeing growing recognition of the imbalances coupled with panic buying. But Roubini made a great point. The fact that we're in a bubble does not mean that asset prices won't continue to skyrocket beyond any measure of fundamental value for a very long time to come. As long as central bankers are flooding the system with liquidity, that liquidity will have to land somewhere - probably in stocks, real estate and commodities since "risk-free" bonds generate guaranteed negative returns - and that will inflate asset prices accordingly. The forces of momentum will only take that inflation in asset prices to absurd extremes. This scenario more or less describes 2003, 2004, 2005, 2006 and the first half of 2007. We're just seeing the same thing unfold again, but this time, on a far greater scale. If my analogy is correct, we could easily see commodities, equities, corporate bonds, real estate, all go up 100% in price over the next few years, even as earnings dwindle, inflation roars and recessions grind. Eventually, there will be no greater fools left to bid up stock prices, the bubble will burst, and 2008 will look like kid stuff. While many people within the world's central banks are highly cognizant of this risk, they've opted to kick the can down the road, multiplying the pain, agony and gnashing of teeth that will eventually have to come. I suppose you're correct to be angry. You're probably doing everyone a great service by raising this issue in a public forum. When we all get burned, we won't be able to say nobody told us so.

Equities Update: Post-Fed Gains Hefty, But Temporary

Days like today, and indeed, most days over the past two weeks, suggest a pattern of selling off on what should be considered pretty good news. I can't help but wonder whether we have gone from bullishly scaling a wall of worry to bearishly descending a hill of hope. Big picture, I'm concerned we are at the end of the equities rally. Any sort of shock to the system has the potential to throw everything off a cliff, and it seems little will fuel an ascent higher.

Technically, the broad market observed the 50 day exponential moving average as resistance, suggesting the path of least resistance is now lower. That measure could be misleading, though. We are quite oversold on a short term basis, and still holding support at the 65 day exponential moving average. That would normally be a precursor to a significant move higher. Perhaps seasonal factors support a push higher, as well. Finally, shorter term moving averages remain firmly above longer term moving averages, indicating the long term upward trend is still in place.
Overall, it appears too soon to call an end to the bull market that started back in March of this year. By the same token, it's getting harder and harder to anticipate much easy money in the markets at this point. The real challenge, though, is that risky assets are not all that exciting to invest in, but so-called "risk free" assets, like US Treasuries, are flat out non-investable situations - unless you're happy to take a guaranteed after-tax, inflation-adjusted loss. If risky and risk-free assets are equally un-attractive, investors face a mild conundrum. Hence, I think the only reasonable advice at this point is to just go on vacation.

Thursday Outlook: Commodities, Global Markets

David introduces an important concept, something that might be worth fleshing out a bit. We're due for a short term rally - probably today or Friday, under various technical indicators - NYMO, for instance. Longer term, if I read David correctly, we're poised for a more severe downturn in the price for risky assets. One of the main items (certainly not the only item) that David points to is this pattern of low volume up days, high volume down days that we've seen these last few months. And overall, volume has been fairly pathetic over the last bunch of months in any event, which signals a lack of conviction on the part of bulls.

Here's another take on the question of volume - wonder if anyone buys into this. The low volume is a contrarian indicator. Low volume suggests investors, writ large, are highly skeptical of the rally, and that investor sentiment has been and remains in the toilet. If that is correct, and if we have been in a bull market of late, it would be unusual for the bull market to end in widespread gloom and skepticism. Bull markets typically end when 9 out of 10 people you meet on the subway are investing their life savings into risky assets with conviction. Well, looking at this light volume over the last half year, I wonder whether only 5 out of 10 people on the subway are investing in risk with determination and certainty. And I wonder how many of these five guys are like me, terrified each day the market is open for business, finger poised above the sell button, secretly bearish.....

Wednesday Outlook: Commodities, Global Markets

Alas, what a difference a day makes. The big excitement today is how many ETFs sliced through their 50 day moving averages. I expect Dave will have something to say about that in his next article, which I await with great interest.

Some would argue that a failure to observe a 50 day moving average, at a time when short term momentum indicators like the NYMO are already at oversold extremes, suggests we are at the front end of an intermediate downward trend (or worse). If so, then we will be in the most heavily and widely anticipated market correction in recent history. Yes, we are all conditioned to believe that the market rarely rewards the majority-held view, but perhaps this truly is The New Normal - to borrow a phrase from Bill Gross. In the New Normal, the majority actually get it right, and are richly rewarded by the market.

Which reminds me, anyone notice Abby Joseph Cohen stepped down this year at Goldman? Ahhhh, at the highs of the market bubble back in the late 1990s, Abby Joseph Cohen was practically a household name, offering up her widely accepted views that the stock market had nowhere left to go but up, thanks to the miraculous and new dynamics of the tech industry. In the late 1990s, we all knew we were in a fundamentally new era, that markets would absolutely go higher and higher, perhaps forever, and Abby Cohen was quite the spokesperson.
But no longer. Bill Gross is rapidly becoming today what Abby Joseph Cohen was to the financial media in the late 1990s. Like her, he points to a New Normal, a fundamentally new era that supports a continued slide in equities (and other risky asset) prices.
Have we come full circle, then? Do we all have a high degree of conviction that asset prices must drop, that the economy is fundamentally different this time, and have we finally settled on financial celebrity spokespeople who will articulate this belief on our behalf? If so, with history as any guide, we are wrong. Unless, of course, we are all collectively smarter than we were in 1999.

Big Banks: The Consensus Is Cracking

breaking these puppies up would be the best thing for investors. There are some good businesses tucked away in all those folds of fat at places like Citi and Bank of America. And they don't play nicely with each other. At all. I wouldn't be surprised to see activist shareholders pushing for a break up - particularly if world governments (which are, after all, rather activist shareholders at this point) get the ball rolling. Expect enormous push back from management.

Wednesday Outlook: Commodities, Global Markets

Agreed. Doom and gloom are not required to explain things. And in any event, today we seem to be seeing some surprise buying. Garden variety churning, sector rotation, or just locking in some hefty gains? May very well be any and all of the above. Having absolutely no conviction one way or the other seems the more cautious attitude.

Wednesday Outlook: Commodities, Global Markets

Sometimes, the way you can tell you're at an inflection point is that stuff stops making any sense. Futures indicate a positive start, and the market falls. Or the markets sell off on good news, fail to rally off technical support points. At first, you just shrug your shoulders and chalk it up to market wierdness. Until a pattern of wierdness starts to take shape.
One day does not make a pattern. But still, the longer you find yourself scratching your head and wondering why the market is behaving in surprising ways, the more you start to think change may be in the air. I suggest keeping a keen watch for some sign of trouble in any corner of the asset markets. A large defaut on a commercial mortgage, a currency going into a tailspin. Anything that could matter, but it is not yet clear whether it ultimately will matter. I am suggesting a high level of scrutiny is appropriate because I am reminded of some strange, unanticipated churnings in the equities markets right before the subprime market blew up in 2007. I am not suggesting in any way that we are on the verge of any renewed financial collapse (I'd have no way of knowing or even venturing a guess about that). I'm only suggesting that if equities start behaving oddly for any meaningful length of time, that could be an indication that something is on the horizon, and if that something starts to materialize, you'll want to recognize it ASAP and act accordingly.

Thursday Outlook: Commodities, Global Markets

A bunch of index ETFs are filling their trading gaps from last year. These gaps represent strong resistance points, but the bulls appear on the verge of overcoming the bears. If the top range of the gap on VTI, for instance, is no longer a convenient place to initiate short positions, you'd might as well go long or get out of the way. Bearish traders will do so until markets close in on their next areas of notable trading resistance. Which is over 10% higher from here in some markets. Oh goody.
But wait. Under the surface, though, all is not well. David points out, correctly I believe, that there are multiple asset bubbles forming across the capital markets. The issue is not that asset prices have come too far too fast (depending on what time horizon you're talking about, maybe ten years instead of six months, equities have gone nowhere, too slow). The issue that David lays out is twofold. First, governments across the globe have printed money and virtually dumped it for free into the banking system. The money has been plonked into various assets. Second, the risk-free rate of return is still probably negative in real terms. Meaning, when it comes to taking risk, the market has you in a dark room, Lou Cabrazi standing behind your chair, and in a quiet mumble, is now making you an offer you cannot refuse. Why? Because if you are guaranteed to take losses by parking money into risk-free assets (3% interest on a US Treasury, after taxes, is certainly less than the 3% average inflation rate observed over the past 100 years) you will rotate into risky assets. You have no choice.
Here is the problem with an offer you can't refuse. The price has nothing to do with what a rational buyer, having all knowledge of the facts, would pay in an arm's length transaction. And this gets really interesting when not only are you faced with an offer you can't refuse, and your pockets are brimming with freshly minted cash that doesn't belong to you but you get to spend anyway? What sort of a price might you be willing to pay? And has it anything to do with what a rational investor might pay?
We might not like it, but the market is going up, and arguing with the market is unwise. I share David's thesis, but it doesn't follow that the time to initiate short positions is upon us. To the contrary, as long as the market surmounts technical resistance in the face of skepticism and disbelief on the part of investors, I'm happy to allocate capital to risky assets. But when the tide turns, the fundamental imbalances in the capital markets are so very profound, I shudder to consider how low markets could drop.

Thursday Outlook: Commodities, Global Markets

Couldn't you chalk up yesterday's market sell off to the fact that the S&P500 hit 1080, which is exactly where the top of it's trading gap lies? It seems to me that if you made money shorting the S&P500 last time it was at 1080, you'll short it again this time, too. Based on the market yesterday, it appears others share this view of mine.

The broader question is, does this mean anything? The answer is "no". We should watch to see what the follow through looks like. Thus far, there has been significant follow through on yesterday's sell off, which may or may not morph into the well expected "correction" the experts have not only been calling for, but demanding.

I am watching SPY and VTI to see whether they find support at the bottom of their trading gap range - 104.72 and 52.91, respectively. If we break below those areas as support, then I'd expect the selling to gain some momentum and we could go down to the 30 day exponential moving averages for each security, or below. If, on the other hand, we catch support at those levels, that will signify that sellers have converted into buyers, which favors further upside gains until the NEXT area of technical import (around 1200) on the S&P 500.

Stepping back, markets are, once again, at a key inflection point. This means that as a strategy, it is important to have absolutely zero conviction. We must assume that at this point, the market is a giant, trillion pound coin, spinning above our heads, and we have no idea whatever whether it will come down heads or tails. Anyone brash enough to believe they know which way the coin will fall is apt to get crushed by it, a just reward for hubris. The only real debate is not whether the coin will come down heads or tails, but rather, how to recognize once the coin has fallen, and how to actually interpret whether, in fact, it really is heads or tails. I'll submit my view that the answer lies at $52.91 for VTI and $104.72 for SPY.

Boom or Bust Cycle: Where Are We Now?

What you're asking for is a prediction. I'd be more than happy to oblige, except any prediction I make about the future will be worth about as much as you pay to read my articles.
Rather than predict the market, my goal is to describe it. What's the practical use of that? By describing the nature of the market, we can get a sense whether it is a better strategy to own or sell risk - trying to guess whether the Dow Jones will hit 10,000 next year or in the next decade isn't helpful or, in fact, necessary.
I say "should" and "may" by design because I don't believe in "will". With the exception of a very select few traders, most people who do believe they know for sure where the market will be in a year end up humbled and poorer.


On Aug 13 06:11 PM whidbey wrote:

> You said, "The future should look brighter than it may at first blush."
>
>
> Why do the screwballs come here to reveal themselves? "should" "may"
> meaning what? Tighten it up partner or just skip it. We read a lot
> of stuff and you just can't make here without something to say. Personally
> I kind of like your ideas, but not in writing.

Boom or Bust Cycle: Where Are We Now?

Thanks for this link. Very interesting perspective.

On Aug 13 06:18 PM E Nuff Sed wrote:

> Rather than arguing hypotheticals look at the data.
> This is a chart of market cycles based on real returns and nominal
> returns going back to 1871. Clearly in "real" terms we have been
> in a bear market since 2000. This has been the longest bear market
> in modern history (assuming Mar 9th bottom & we are now recovering)
>
> www.scribd.com/doc/183....

Boom or Bust Cycle: Where Are We Now?

Not so wild about your photo, either.


On Aug 13 01:11 PM Dave Wrixon wrote:

> This guy really is as daft as his photo suggests!
>
> Where we are is at the middle peak of the W. The second leg down
> will be less steep but will actually take us down to about S&P
> 400 or their abouts. The low volumes show this is a complete rigged
> market and when the selling pressure comes back it will quickly capitulate.
>
>
> And does believe those Morons that talk about paper losses. If you
> cannot get your cash back then you have lost your money. And even
> if you could it now worth a fair bit less than when you put it there.
> The value of that cash is going to quickly crash but having it tied
> up in Wall Street isn't going to get you back in the black.

Boom or Bust Cycle: Where Are We Now?

What does "really bad" mean? "Bad" as in the Japanese economy in the past twenty years? No, we aren't close to that bad. Compared to 1929-1932? No, not as bad.

I'd be comfortable describing the 1970s as "bad" for investors, and using the metrics I suggest, we're not quite as badly off now, but we're very close. It just doesn't feel as bad because if the dollar is your functional currency, you don't notice how far your wealth has dropped each time you go to the grocery store. If you were sitting in Paris holding US equities only, you'd certainly feel like an investor would have felt by the time 1980 rolled around.


On Aug 13 01:04 PM Roger Knights wrote:

> "And we can also know that after a really bad stretch in the market,
> usually a really good stretch follows."
>
> We haven't had a REALLY bad stretch yet.