Seeking Alpha

Cliff Wachtel's  Instablog

Cliff Wachtel
Send Message
Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
My company:
THE SENSIBLE GUIDE TO FOREX
My blog:
THE SENSIBLE GUIDE TO FOREX
My book:
The Sensible Guide To Forex: Safer, Smarter Ways To Survive & Prosper From The Start
View Cliff Wachtel's Instablogs on:
  • PRIOR WEEK MARKET MOVERS: Q3 EARNINGS, DATA, OVERCOMING CENTRAL BANK MANIPULATION?

    For months now, virtually all global risk assets have kept climbing or holding near multi-year highs on nothing more than hopes that additional central bank stimulus that would send waves of cash seeking a home and power asset prices higher, regardless of building evidence of slowing global growth and an intractable EU solvency crisis that remains a fatal threat to global markets.

    Indeed, the unprecedented influence of central bank interference, and thus its unpredictable effects, was the chief concern of top analysts this week at The Big Picture conference hosted by Barry Ritholtz, one of the premier finance bloggers. See here for details.

    Overall, global equity and currency markets remain in their tight trading ranges of the past month. However this past week markets retreated towards the bottom of those monthly trading ranges.

    Why? What changed?

    The big new thing was the start of Q3 earnings. Their weakness was anticipated, but apparently not as priced in as thought.

    Sure, there were also all kinds of reports confirming the already established slowing or stagnant global growth picture, but that's old news. Besides, the prevailing view has been that new, often unlimited central banks stimulus programs were enough by themselves to keep assets rising despite economic realities.

    So here's the biggest question coming out of this past week.

    Will Q3 earning reports prove to be the catalyst for the long anticipated pullback? Will they be the reality check that awakens markets from their stimulus induced highs and pulls them down back into the cold reality of slowing growth bringing declining earnings and asset prices, regardless of historically unprecedented degrees of central bank money printing and low to negative interest rates?

    Earnings Worries

    Note that 75% of firms offering forward guidance have cut their earnings forecasts. Results thus far have done nothing to raise earnings expectations.

    Growth Fears

    In addition to the steady stream of downbeat data in recent weeks, growth fears were fanned by news that the World Bank had cut growth forecasts for China and East Asia on Monday, which was then followed by the IMF lowering its global growth forecasts Tuesday.

    Other Market Movers

    On Thursday markets rallied overall on the US jobless claims beat, and S&P's Spain credit downgrade (to BBB, one level about junk status. That was seen as bullish because it raised hopes Spain would request and receive a bailout. On Friday, however, markets again retreated on growth and earnings concerns.

    Conclusions, Lessons

    Bulls have argued that the weak earnings season and future guidance was already priced in. The past week's results suggest otherwise, but earnings season has only just begun.

    This week earnings season kicks into high gear with far more big name firms reporting. Stock markets tend determine overall market risk appetite.

    Q3 Earnings Could Spark A Move Lower

    Uncertainties regarding the EU, China, and the US (along with assorted geopolitical tensions) have been with us for a while. There was nothing new last week other than the start of earnings season.

    The coming week is the first 'big' week for earnings season, with hundreds of firms reporting and a huge chunk of the big names and sector leaders that tend to get attention and move markets. For example, Dow components GE, MSFT, and IBM, key financial stocks like Bank of America (BAC.N), Citigroup (C.N), Goldman Sachs (GS.N), Morgan Stanley (MS.N.), and other blue chips like tech giants INTC.O, GOOG.O, and also MacDonald's Corp (MCD.N), UnitedHealth Group (UNH.N) and Johnson & Johnson (JNJ.N).

    If earnings and future guidance continue to be dour, they'll both:

    -Refute the bull's argument that markets had already priced in a weak earnings season.

    -Reinforce the bear's argument that slowing growth indeed must soon hit earnings and risk asset prices.

    Then the long anticipated pullback, despite central bank easing, is far more likely.

    For more on what's likely to move markets this week, see our post on coming week market movers.

    What To Do?

    The tight trading ranges at relatively elevated levels have not provided low risk entry points, not for multi-week trades nor for long term investments. We sit tight for now given the lack of direction. Overall thin trading volumes suggest most players agree with this approach.

    What is clear is that the leading central banks remain committed to printing money and allowing their currencies to drift lower, so for the longer term, everyone whose central bank is in long term easing mode (most of the major central banks are) needs to start increasing their exposure to more responsibly managed currencies or assets linked to them.

    Not sure how to do that? I've got a new book out full of solutions.

    I've got a new book out that's full of solutions. It's the only forex book I know of that's written for those seeking safer, simpler ways to do that than generally found in forex or international investing guides.

    So take a look at The Sensible Guide To Forex: Safer, Smarter Ways To Survive and Prosper From The Start (Wiley & Sons, 2012).

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 13 10:25 PM | Link | Comment!
  • COMING WEEK MARKET MOVERS: EARNINGS, ECONOMIC REALITIES, OVERRIDING STIMULUS OPTIMISM?

    The top 10 likely market movers to watch this week- a strategy guide for the coming week

    Last week markets remained within their tight trading ranges of the past month, the only difference being that they pulled back towards the lower end of that range, as exemplified by the bellwether S&P 500's over 2% drop.

    While it's possible that last week's drop was just another gyration within that trading range, here are reasons we believe that next week is more likely to bring a more extended pullback.

    1. Q3 EARNINGS SEASON: CATALYST FOR A PULLBACK?

    As noted in our review of last week's top market movers, PRIOR WEEK MARKET MOVERS: Q3 EARNINGS, DATA, OVERCOMING CENTRAL BANK MANIPULATION? (see here), the big take-away lesson was that a poor Q3 earnings season may be what ends the prevailing notion that risk assets can continue to rise despite:

    • Global growth slowing
    • An increasingly poorer Western consumer that has been the foundation of both developed world and BRIC export economies
    • Potentially catastrophic threats to the largest consumer economies from the EU solvency crisis and US fiscal cliff

    Of course, all of the above have been with us for some time and markets have still either continued higher or held their ground. The only big change last week was that Q3 earnings season began, and thus far indeed looks like it may be the worst in years. Until last week, bulls waved off these concerns by saying that the weaker season was already anticipated and hence priced in.

    Last week' ~2% drop in US indices suggests that's not the case. However the first week of earnings season is relatively light.

    Earnings season is most influential on markets in its second and third week.

    This second week is the first 'big' week for earnings season, with hundreds of firms reporting and a huge chunk of the big names that tend to get attention and move markets, as detailed in the above mentioned post. If these announcements continue the downbeat tone of last week, and markets continue to pull back without the help of major bearish news elsewhere, then Q3 earnings may prove to be the final evidence that the disconnect between rising asset prices and deteriorating economic fundamentals may be over, regardless of the current money printing from the Fed, ECB, BoJ, PBoC, etc.

    Note that we must watch more next week than just bottom line earning beats or misses. Markets will also be watching:

    • Future guidance for Q4 2012 and beyond: Some, like Citi's Jason Shoup, feel these are still too optimistic, thus leaving us vulnerable to downward revisions
    • Top line revenues: As costs have already been pared, sales growth will be key to growing future earnings.
    2-5. EU EVENTS

    The EU has remained relatively quiet for weeks as an actual market mover (though it continues to produce headlines and drama). However there are simply too many sources of market crises for that to continue. In the past week's we've repeatedly reminded readers of reports that Washington wants quiet on the EU crisis front until after the elections, and it appears that the EU is doing its utmost to comply, despite:

    Greece seeking additional cash that by all logic it doesn't deserve because it has shown few signs of good faith in meeting its bailout agreements, and even fewer signs that it might actually repay its current debts, never mind additional ones. Greece will run out of cash within the month without another handout.

    Spain showing every sign that it's going the same way as Greece (ongoing bank runs, political instability, budgets based on unrealistically optimistic growth projections, etc)

    2. EU Summit

    Per the recent European Finance Ministers meeting, Greece may well get its cash anyway, be it due to Washington's request for quiet or simply the belief that the resulting contagion risk is too high and would cost far more than the 'loan'/handout to Greece. Few expect any meaningful action on Spain, which is avoiding any moves on a bailout until after October 21 regional elections, and in general is trying to avoid a bailout with conditions that would prove politically unpopular, like tax increases, spending cuts, or other steps needed for repaying its debts in a timely manner.

    3-4. French, Spain Bond Auctions, Other Events

    Spain has a key auction of benchmark 10 year bonds, and France also has a bond sale this week. Thus the ECB typically makes sure all looks well, so any problem with spiking yields or weak demand can make markets nervous.

    In addition to Spain's bond auction, Spain also has regional elections in Catalonia and Galicia, and there's the threat of a credit ratings review from Moody's that could push Spanish bonds into the junk category. Last week's downgrade was seen as bullish, because supposedly it moved Spain closer to a bailout. However that assumes Spain will submit to EU conditions before doubts of its solvency bring yet another market crisis. We suspect that a market scare is more likely than a smooth transition to bailout, particularly once US elections have passed.

    France also has a bond sale this week. France has remained off the radar thus far, but few expect it to remain so. One bad auction is all it takes to get markets focused on France's worrisome data and puzzling policies to improve its debt and growth situation.

    5. UK Events

    In addition to UK inflation, jobs, and consumer spending data, the big UK event this week is the BoE meeting minutes release, because it could show if the BoE is moving closer to following the Fed, ECB, BoJ, PBoC, and others into easing.

    6. US RETAIL SALES

    In addition to Q3 earnings, the big event for the US will be retail sales, which will either confirm the latest improved jobs figures or refute them. In the end, the significance of improving jobs is improving spending, given that US GDP (and thus job growth) depends mostly on improving consumer spending.

    7-8. CHINA, AUSTRALIA DATA, SIGNS OF MORE EASING

    There 's a batch of data due from China, including September trade balance numbers, consumer and producer prices, industrial production, retail sales, and 3Q GDP. If these worsen, markets could either react negatively, or, as is happening more frequently in these times of stimulus being the last hope for bulls, positively if the data is bad enough to raise hopes for more stimulus. Recent comments from PBoC Governor Zhou have fed hopes that more easing is coming, and that's kept Chinese markets in relatively good shape, and also supported the AUD, given the close link between Aussie and Chinese GDP.

    The RBA will release its latest meeting minutes, and these too could move markets if they yield hints about whether more easing is coming or not.

    9. TECHNICAL WEAKNESS COULD BECOME SELF-FULFILLING

    Many have noted that the S&P 500 is dangerously close to its 50-day moving average, risking a cross below it (aka an 'iron cross or 'death cross') that sends a strong technical signal of further downside ahead. In the absence of positive news, such widely followed technical signals can become self-fulfilling prophecies.

    10. OTHER CALENDAR EVENTS

    Other top calendar events not mentioned above include the following:

    • Tuesday: German ZEW economic sentiment
    • Thursday: US Philly Fed Mfg Index
    • Friday: US Existing Home Sales

    See any good economic calendar for further details

    PARTING THOUGHTS: OBVIOUS PROTECTION IN UNCERTAIN TIMES

    While the coming week could play out in a number of ways, what is virtually certain in the longer term is that the leading central banks remain committed to printing money, even if their currencies fall and drag down the value of anything denominated in them.

    That means if you're based in USD, EUR, JPY and other currencies subject to central banks in easing mode, you need to start increasing your exposure to more responsibly managed currencies or assets linked to them.

    Until recently, most people have had a hard time finding solutions to this need for currency diversification. Most forex guides focus on methods that are too demanding and risky for mainstream investors, and most foreign investing guides focus on the fundamentals of specific assets without considering the quality of the currency to which they're linked.

    I've got a new book out full of solutions. It's the only forex book I know of that's written for those seeking safer, simpler ways to do that than generally found in forex or international investing guides.

    So consider the book, The Sensible Guide To Forex: Safer, Smarter Ways To Survive and Prosper From The Start (Wiley & Sons, 2012).

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 13 10:19 PM | Link | Comment!
  • COMING WEEK'S 4 TOP MARKET MOVERS, FRIDAY’S BIG LESSONS

    A key reminder from Friday for the coming week

    Here's a quick rundown of the likely market movers for the coming week, and a very important lesson from Friday's price action.

    1. Delayed Reaction To Us Jobs Report

    While its understood that Asian markets won't have have a chance to react to the US jobs reports until Monday, at times the weekend produces a new take on the Friday reports in Europe and the US too.

    Given the potential influence on the US elections, expect to hear ongoing debate on whether the better than expected unemployment rate was a real or temporary improvement.

    Preliminary evidence suggests much of the improvement was the result of a bump in temporary and part-time jobs rather than in 'real' jobs that provide both steadier incomes and benefits.

    On the other hand, pro-Obama commentators have noted that the pickup in car sales in September implies that the improvement in jobs is real. I've a few problems with that idea.

    1. The past month's improvement was not huge, and remains within the upper range of monthly results for 2012, as shown below.

    (click to enlarge)

    02 oct 06 2219

    Perhaps the most compelling evidence against this month's figures indicating a material turnaround in employment comes from those who should know best, the US Federal Reserve. It's dramatic, unlimited new QE 3 suggests that the central bank remains pessimistic about the US employment situation.

    It's worth noting that while a good jobs report typically is enough to spark a rally, US markets closed essentially flat, because the optimism was negated by a WSJ report that "European Central Bank executive board member, Joerg Asmussen, said it isn't certain that Greece would receive an aid payment in November."

    This leads us to our next likely market mover to watch next week.

    2. Speculation On Spain, Greece

    One the one hand there are plenty of reasons to be concerned about near term volatility from EU crisis issues.

    -Spain is unlikely to submit to EU conditions until a crisis forces the issue. It had hoped that its recent budget proposal would satisfy the EU and prevent it from demanding more austerity. However the budget appears to be based on growth assumptions that are far too optimistic and have undermined the budget's credibility with the EU.

    -Greece simply isn't holding to its agreements and wants cash anyway. It claims it will be insolvent by November (and could drag the EU and beyond down with it) if the EU doesn't pay up.

    On the other hand, Per a recent Reuters report, Washington wants quiet in the EU until after the November 6th elections, and EU forbearance with Greek fiscal misbehavior thus far suggests that Obama will probably get it.

    However as we note above, that doesn't mean we can rule out EU drama as a market driver, even if we're likely to avoid a crisis in the coming month. As we saw Friday, it took nothing more than a comment from a senior EU official to reverse what would have been a rally in US markets Friday.

    3. Speculation About US Earnings Season & Reaction To Early Announcements

    Recent pessimism has lead to lowered guidance, though these may be just part of the game we've seen in the past, when these low-balled estimates are then beaten and the 'surprise' provides an excuse for a rally. US earnings season officially kicks off with Alcoa on Tuesday October 9th. Here's a list of the top names announcing next week.

    Tuesday: AA, YUM

    Wednesday: COST

    Friday: WFC, JPM

    Other Scheduled Calendar Events

    Tuesday

    EU: ECB head Draghi speaks, ECOFIN MEETINGS

    Thursday

    G7 meetings

    Friday

    US PPI, UoM Consumer sentiment

    Saturday

    China trade balance

    Conclusions

    We want to keep this post short, so just a few brief conclusions to take into the coming week.

    Don't Forget the EU

    Again, the big lesson from the prior week appears to be Friday's big reminder to us all: that the current EU quiet is deceiving. Just one comment was able to negate a seemingly very positive result from the monthly US jobs report, one of the most important reports of the month.

    If Your Assets Are Mostly in USD, EUR, or JPY….

    For USD based investors, we got another important reminder on Thursday in an article from Reuters, China mounts challenge to dollar's hegemony, about the consequences of Fed policy and the importance of diversifying out of USD denominated assets if too much of your wealth is denominated in or linked to it.

    For those based in Euros, the situation in the EU, and the ECB's responses to it (print Euros like crazy, to buy dubious GIIPS bonds, etc) should be reason enough to be concerned that in the best case scenario, the Euro's long term down trend is likely to continue for the foreseeable future.

    While on the topic, what discussion of currencies being debased by unprecedented money printing would be complete without mentioning the JPY? Winner of the award for the most important (and disturbing) article on the Yen in recent weeks goes to Wolf Richter, who recently wrote about Japan's quiet admission that it too may well default on its debt when the need arises. See here for the full post.

    Everyone accepts the need to diversify by asset and sector type, yet few take the needed steps to diversify currency exposure. Yet one can do so without excessive risk or effort.

    Today everyone needs to diversify their holdings by currency just as they do by asset and sector type. See here for the best guide to show mainstream lay investors safer, simpler ways to do that than generally available from forex trading or international investing advisors. It's suitable for both beginners and experienced investors. There's even a free no obligation course available to help you better assimilate the book's lessons, courtesy of Caesartrade.com. See here for details.

    DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 06 6:19 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.