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I am an independent trader with over 25 years of experience working on the buy and sell-side. I have researched and invested in traditional and alternative asset classes and worked at Pensions Funds, International Banks and Dealers.
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  • Stocks - NYSE - Do We Have An Hindenburg Omen ?

    The Indicator

    ​​The Hindenburg Omen is a technical analysis pattern that is said to portend a stock market crash. It is named after the Hindenburg disaster of May 6, 1937, in which the German Zeppelin Hindenburg crashed and burned.

    ​​The Hindenburg Omen is a combination of technical factors that attempt to measure the health of the NYSE (NYSE), and by extension, the stock market as a whole. The goal of the indicator is to signal increased probability of a stock market crash.

    The rationale is that under "normal conditions" a substantial number of stocks may set either new annual highs or new annual lows, but not both at the same time. As a healthy market possesses a degree of uniformity, whether up or down, the simultaneous presence of many new highs and lows may signal trouble.

    The traditional definition requires each condition to occur on the same day. Once the signal has occurred, it is valid for 30 days, and any additional signals given during the 30-day period should be ignored. During the 30 days, the signal is activated whenever the McClellan Oscillator is negative, but deactivated whenever it is positive.

    We will have to follow that indicator which has been triggered on April 15... And again on may 31.

    ​Some Statistics

    ( from Albertarocks )

    ​​These are hard facts based what happened previously over two and a half decades of pure Hindenburg Omen history ( from Albertarocks):

    ◾Major Crash - 27% probability
    ◾Selling panic of at least 10-15% - 39% probability
    ◾Sharp decline of at least 8-10% - 54% probability
    ◾Meaningful decline of at least 5-8% - 77% probability
    ◾Mild decline of at least 2-5% - 92% probability
    ◾The HO signal is an outright miss - 7.7% probability (one out of 13 times)

    ​​​Criteria

    These criteria are calculated daily :

    1.The daily number of NYSE new 52 week highs and the daily number of new 52 week lows are both greater than or equal to 2.8 percent (this is typically about 84 stocks) of the sum of NYSE issues that advance or decline that day (typically, around 3000).

    NYSE New 52 Week Highs

    (click to enlarge)

    Chart from Stockcharts

    NYSE New 52 Week Lows

    (click to enlarge)

    Chart from Stockcharts

    2.The NYSE index is greater in value than it was 50 trading days ago. Originally, this was expressed as a rising 10 week moving average, but the new rule is more relevant to the daily data used to look at new highs and lows.

    NYSE Composite Index

    (click to enlarge)

    Chart from Stockcharts

    3.The McClellan Oscillator is negative on the same day.

    NYSE McClellan Oscillator

    (click to enlarge)

    Chart from Stockcharts

    4.New 52 week highs cannot be more than twice the new 52 week lows (though new 52 week lows may be more than double new highs). Or on a basis ratio, must be lower than 2.

    Ratio
    ​NYSE New 52 Week Highs vs NYSE New 52 Week Lows

    (click to enlarge)

    Chart from Stockcharts

    (Stocks)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: short-ideas
    Jun 02 7:56 PM | Link | Comment!
  • Bank Lending, M2 And Inflation

    The Situation

    ​​One of the main reason why inflation will remain subdued is that the growth of bank lending is small compare to the growth of monetary aggregates as we will see in detail below. The other reason is that the money injected by Central Banks is not creating demand in the economy enough (liquidity trap?) and velocity is tumbling.

    Using August 2008 as a proxy: the approximate time of the Lehman bankruptcy which kick-started the new, more expansive era of central bank policy - as the base (i.e. index = 100);

    1)​​The U.S. monetary base has grown to 347, but the money supply (M2) has only grown to 135.
    2)The UK monetary base now stands at 433 with its money supply stuck at 110.
    3)​The eurozone monetary base is at 157 while the money supply stands at 107.
    4)​The Japanese monetary base is at 150 (and about to go much higher) but the money supply is only at 113.

    From CreditWritedowns:

    "At the end of the day, it is the money supply, not the monetary base, which sets the tone for inflation. Another way to illustrate this is by having a glance at QE's effect on bank lending (see the graph below).

    ​​There has been no growth in bank lending at all despite all the so-called money printing. Investors are quite right in keeping their eye on the ball but, through my lenses, it looks as if they are focusing on the wrong ball. "

    (click to enlarge)

    Chart from CreditWritedowns

    Even if the growth of the US M2 monetary aggregate exploded in 2009 after the first QE, it slowed tremendously since 2012 as shown by the chart below...

    US M2 Money Stock Year-Over-Year %

    (click to enlarge)

    Chart from FRED:

    And the slowing of the monetary aggregate has been joined by a complete fall out of the velocity of money stock M2: ​​velocity has plunged with the M2 gauge dropping below 1.6 recently for the first time since records began in 1959 (as shown in the chart underneath from the Federal Reserve Bank of St Louis).

    ​The velocity of money (also called velocity of circulation and, much earlier, currency) is the average frequency with which a unit of money is spent on new goods and services produced domestically in a specific period of time. Velocity has to do with the amount of economic activity associated with a given money supply.

    US M2 Money Velocity

    (click to enlarge)

    Chart from FRED:

    And just to gives us a sense of the slowdown in money growth/turnover, I took the M2 growth (year-over-year in %) times the velocity of money. Observe the huge slowdown since 2012...

    US M2 Money Stock Year-Over-Year %
    times
    ​​US M2 Money Velocity

    (click to enlarge)

    Chart from FRED:

    Conclusion

    We should finally realize that not the quantity of money but the credit multiplier and velocity of money are signs of potential inflation. As a gauge, the Federal Reserve can be comfortable to continue to be accommodative. (NYSEARCA:TLT)

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

    May 31 2:46 PM | Link | Comment!
  • US Banks Margin Under Pressure

    Macro View, Economy, Financial

    ​The US Banks are starting to be squeezed out by slowing loans demand (on all side, either commercial and industrial loans and consumer loans) and skyrocketing amounts of deposits, a direct consequence of the great financial crisis. Combined with already lean and mean banks that have mostly done their clean up process in terms of cost cutting after the crisis, they will face tremendous pressure from continued net interest margin till the Federal Reserve start the process of hiking short term rates.

    US Banks Balance Sheet: Unbalanced

    The US banks balance sheet ​​has never been so unbalanced since the crisis as shown by the graph below. The growth of deposits has been enormous and loans has not being able to follow money wise. So the last numbers available (May 15), deposits were at $9.37 trillions $ and loans at $7.29 trillions $.

    Total US Deposits at All Commercial Banks (Blue)

    Total US Loans and leases at All Commercial Banks (Red)

    (click to enlarge)

    And a zoom on the past five years where we see the huge gap building between deposits and loans.

    (click to enlarge)

    And in terms of growth year-over-year, the difference between deposits growth and loans are striking, as shown by the chart below...

    (click to enlarge)

    US companies are pulling back on borrowing, which could put a drag on the limping US. economy and make it even harder for banks to break out of their long slump.

    Outstanding loans by the biggest banks to U.S. companies was 3.1% in the first two weeks of may compared to last year, according to Federal Reserve data.

    The growth rate has been declining since the beginning of 2012, where it reached a maximum of 5.7% in June 2012.

    Change in Total US Industrial Loans at All Commercial Banks $ vs year ago (Blue)

    Change in Total US Gross Private Domestic Investments $ vs year ago (Red)

    (click to enlarge)

    Consumer Loans

    The recent slowdown is especially disconcerting because demand for other types of loans is cooling, too. Consumer lending is growing only around 2.5% since the beginning of 2013, according to Federal Reserve data.

    And the growth of commercial and industrial loans has been slowing recently as consumer loans growth, already in low gear since mid-2012 will add to banks margins pressure as shown by the chart below (year-over-year growth).

    Change in Total US Industrial Loans at All Commercial Banks yoy (Blue)

    Change in Total US Consumer Loans at All Commercial Banks yoy (Red)

    (click to enlarge)

    Conclusion

    Even if most of the US banks deposits are bearing a 0% interest rate, the compression of spreads in the fixed income, the relatively flat curve and US Federal Reserve Quantitative easing did just accelerate the process. If we add into it the administrative costs to manage those deposits, net interest margins are under pressure.

    So, booming deposits, a slowdown in commercial and industrial loans growth and US consumers borrowing less are contributing to a squeeze that began already in 2010 and will continue in 2013 unless banks charge some administrative fees to compensate.

    To compensate that earnings slowdown, big banks has been cutting billions from reserve funds. The top five banks released $5 billion from reserve fund in Q1 2013, which equal to roughly 25% of their total profits.

    Big banks won t be able to show growth in earnings going forward, as a slowdown in the economy and tapering reserve fund will be less of an option.

    And net interest margin at US banks will continue their decline as shown by the chart below.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    May 28 3:30 PM | Link | Comment!
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