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Lawrence Fuller  

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  • This Is Why The Stock Market Is Tumbling
    Wed, Mar. 11 SPY 15 Comments

    Summary

    • The stock market plunged on Friday following a stellar jobs report that led to concerns that the Fed would begin increasing short-term interest rates as early as June.
    • Pundits have cited a strengthening dollar, which will get stronger with interest rate increases, as the primary reason for the sell-off.
    • I believe the stock market decline is primarily a function of the unwinding of institutional leverage in advance of the increase in short-term borrowing costs.
  • Profit Margins Are The Linchpin To This Bull Market
    Thu, Mar. 5 SPY 15 Comments

    Summary

    • Stock prices continue to rise despite historically high valuations and an expected downturn in corporate profits and revenues.
    • The consensus expects a return to record corporate profits by the end of this year, and the linchpin is a continued increase in profit margins.
    • The conflict is that nearly every tailwind that has lifted margins since the recovery began is either now or soon to become, a headwind.
  • This Picture Is Worth 1000 Words
    Tue, Feb. 24 SPY 17 Comments

    Summary

    • The forward price-to-earnings ratio for the S&P 500 is 17.1x, based on consensus earnings estimates.
    • This figure alone could be interpreted as either bullish or bearish, but when viewed in the context of other market indicators, from a long-term perspective, the picture changes.
    • While the data is open to interpretation, the picture looks to be one of a market that is very expensive by any historical measure.
  • Leading And Lagging Indicators Of Stock Market Performance
    Sun, Feb. 22 SPY, DIA, QQQ 12 Comments

    Summary

    • Identifying which economic indicators lead and lag stock market performance is critical in managing investment risk.
    • Consumer spending is a leading indicator, while employment is lagging, but conventional wisdom leads investors to believe otherwise.
    • The downtrend in the annual rate of growth in spending does not support the uptrend in stock market indices.
  • Watch The Small Cap Canary In The Stock Market Coal Mine
    Wed, Feb. 11 RWM, SPY, IWM 44 Comments

    Summary

    • The Russell 2000 small cap index has significantly underperformed the S&P 500 in recent months.
    • This could be a leading indicator of a broader market decline.
    • Watch for a break down in the Russell 2000 below key support levels for confirmation, or a break out that may indicate the bull market has further to run.
  • Another Profits Recession Is Underway - Implications For The Stock Market
    Mon, Feb. 9 SPY 90 Comments

    Summary

    • The consensus is now forecasting a year-over-year decline in S&P 500 operating earnings for the first and second quarters of 2015.
    • The historical precedents for such a decline are ominous.
    • The consensus is still too optimistic in its earnings expectations for the second half of 2015, based on the assumption that profit margins will continue to climb.
    • Investors should prepare for what is likely to be the first market correction in more than three years.
  • Man The Lifeboats Before The Crew Jumps Ship!
    Sat, Jan. 31 SPY, DIA, QQQ 39 Comments

    Summary

    • While employment and consumer data remain very upbeat, businesses must now contend with a collapse in oil prices, a strengthening dollar and slower rates of global growth.
    • The US stock market has stalled the past 3 months since the conclusion of the Fed's QE program, and it must now contend with the prospect of waning stock buybacks.
    • With the Fed resolute in its intent to raise interest rates this summer, combined with historically high valuations, the US stock market should have a negative return in 2015.
  • Why 'Whatever It Takes' Won't Be Enough
    Mon, Jan. 26 DXGE, HEDJ, SPY 2 Comments

    Summary

    • The ECB launched an aggressive new quantitative easing program last week to restore growth in the eurozone.
    • What will it accomplish?
    • What will it not accomplish?
    • Where are the investment opportunities?
  • Can The State Of Our Union Be Strong When The Economy Is Not?
    Thu, Jan. 22 SPY 10 Comments

    Summary

    • The majority of Americans have still not recovered financially from the Great Recession.
    • The economic expansion is very fragile due to the fact that we have yet to see a steady increase in real disposable income.
    • Stimulus has been focused on consumption, rather than on investments in production that create high-quality full-time employment.
    • Increasing real disposable income is the key to prolonging the expansion and supporting the financial market gains we have seen to date.
  • Goldman's Call On Oil - A Contrarian Indicator?
    Thu, Jan. 15 XLE, OIL, USO 5 Comments

    Summary

    • Goldman Sachs dramatically lowered its short- and longer-term price targets for crude oil this week, driving prices to new multi-year lows.
    • Early signs that supply/demand metrics are responding to lower prices, in combination with extreme price volatility, indicate that we are in the process of bottoming in price.
    • A change in investor sentiment is likely to follow that will result in a much faster recovery in oil prices than the bearish consensus view is indicating.
  • Is The Fed Buying Stocks?
    Sun, Jan. 11 DIA, SPY, QQQ 41 Comments

    Summary

    • Sudden and swift declines in the stock market have become a more regular occurrence.
    • The recoveries from these declines are just as rapid, which does not characterize typical investor behavior.
    • It appears as though there is an outside force, with motives consistent with those of the Federal Reserve, that is supporting market prices.
    • The short-term benefits of manipulation that leads to wealth creation, should it be occurring, destroys the credibility of our markets, and ultimately leads to wealth destruction.
  • How The Oil Price Collapse Could Lead To A Bear Market And Recession
    Wed, Jan. 7 XLE, SPY, DIA 18 Comments

    Summary

    • The stock market is beginning to decline along with the price of crude oil.
    • This implies that declining oil prices are damaging US economic growth prospects.
    • A stock market correction will reverse the wealth effect that has fueled consumption, reinforcing the oil price decline, and further slowing economic growth.
    • How far prices fall and how long they remain depressed will be the deciding factor.
    • Wall Street speculators in the oil futures market will cast the deciding vote.
  • Investors Should Not Cheer Cheap Oil In 2015
    Dec. 31, 2014 SPY, OIL, XRT 30 Comments

    Summary

    • The consensus is increasing its estimates for US economic growth in 2015.
    • Lower oil prices are being considered a catalyst to that growth.
    • Yet the oil and gas boom in the US has been the most significant catalyst to gains in employment, income, housing and consumer spending in the US.
    • The reality is that lower oil prices will likely slow US economic growth.
  • The Oil Price Plunge - Fiction, Reality And Opportunity
    Dec. 20, 2014 SPY, SLB, CRUD 43 Comments

    Summary

    • What determines the price of oil on a daily basis?
    • The fiction and reality behind the collapse in the price of crude oil.
    • Where are the investment opportunities?
  • The Spark That Ignited This Correction
    Oct. 16, 2014 IWM, SPY 15 Comments

    Summary

    • The unwinding of leveraged positions held by hedge funds is the spark that ignited this correction.
    • A withdrawal of liquidity by our surrogate market markers (HFTs) has hastened and steepened the decline.
    • It is the correction in stock prices that is leading to concerns about the strength of the global recovery.
  • The Stock Market Is Still Broken
    Oct. 10, 2014 XLE, XLB, FNMA 17 Comments

    Summary

    • The sharp decline in stock prices is being blamed on an abrupt deceleration in global economic growth.
    • The stock market is still serving as a catalyst for the Federal Reserve, and not a discounting mechanism for real world economic activity.
    • This correction, led by the energy and material sectors, looks more like forced hedge fund liquidations.
  • Of Course The Market Is Rigged!
    Apr. 11, 2014 DIA, SPY, QQQ 57 Comments

    Summary

    • High-frequency trading (HFT) is the most dominant and manipulative force in our markets today.
    • Its impact poses significant risks to market structure and investor psychology.
    • Practical solutions that address these risks will ultimately come from the free market.
    • Expect significant market volatility and a reversal of the upward bias HFT has had on stock prices as its influence wanes.
  • Yellen Opens Six-Month Gate
    Mar. 28, 2014 DIA, SPY, QQQ 31 Comments

    Summary

    • Janet Yellen's reference to a six-month time frame for increasing short-term interest rates sent the stock market reeling.
    • The consensus has concluded that the continued selling pressure in stocks that followed is a result of slowing economic growth in China and the ongoing crisis in Ukraine.
    • The real reason that stocks are under pressure is the increasing amounts of reverse repos being conducted by the Fed under its Reverse Repo Facility.
  • The Evolution Of Quantitative Easing - A House Of Cards
    Mar. 21, 2014 DIA, SPY, QQQ 37 Comments

    Summary

    • While QE policy has evolved over the past five years, it has never been successful in achieving the Fed's mandate.
    • QE3 was a turning point in the policy when Bernanke abandoned the lending channel and specifically targeted the stock market.
    • Using the stock market as a catalyst for economic growth and job creation has been unsuccessful.
    • The combination of QE with zero-interest-rate policy (ZIRP) over the past 5 years has led to tremendous leverage in risk assets.
    • The tapering of QE3 combined with the end of ZIRP will lead to an unwinding of that leverage and realign risk assets with the economic fundamentals.
  • A Tale Of Two Economies And A Market That Doesn't Care
    Mar. 7, 2014 DIA, SPY, QQQ 36 Comments

    Summary

    • The US is comprised of two economies and the historic divide between the two continues to grow.
    • The disparity between the market's uptrend and the downtrend in disposable income is not sustainable.
    • Fed policy has encouraged companies to pursue short-term profits in lieu of long-term growth that widens this divide.
    • There will be another re-pricing of risk assets that reflects the underlying strength of the whole economy.
  • The Fed's Money Mirage
    Jun. 24, 2013 VWO, SPY 11 Comments
  • The Fed's Third Mandate
    Editors' Pick • Jun. 13, 2013 DIA, SPY, QQQ 45 Comments
  • Where The Bubbles Lurk Today
    May. 24, 2013 SPY 6 Comments
  • An Investment Strategy For The Bears
    May. 17, 2013 VWO 17 Comments
  • The Good News, The Bad News And What's Very Ugly
    Editors' Pick • May. 10, 2013 SPY 254 Comments
  • The Wedge Between Perception And Reality
    Editors' Pick • May. 5, 2013 SPY 49 Comments
  • A Discussion With Managers That Know How To Hedge
    Apr. 29, 2013 HDGE 28 Comments
  • This Summer Slowdown Will Be Different Than The Previous 3
    Apr. 28, 2013 SPY, DIA, QQQ 124 Comments
  • The Fundamentals Are Starting To Matter
    Apr. 22, 2013 DIA, SPY 73 Comments
  • The Fundamentals Don't Matter Anymore
    Apr. 14, 2013 SPY, IVV, VOO 133 Comments
  • S&P 500 Earnings - Don't Conflate The Numbers
    Apr. 11, 2013 SPY 8 Comments
  • David Stockman: Don't Shoot The Messenger
    Apr. 5, 2013 IWM, SPY 46 Comments