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Hawkish Fed No Friend To Bulls, Energy High-Yield Equals Crisis In Waiting, US Dollar All Systems Go
- "Don’t fight the Fed." This is a mantra for bulls when the Federal Reserve is supportive of easy monetary policy. But when the cycle turns, watch out.
- The Federal Reserve deliberately targeted higher asset prices as a means of generating a “wealth effect.” They did this by encouraging corporate borrowing at near-zero rates.
- But as David Lafferty of Natixis Asset Management points out to Bloomberg: “You can’t do a whole lot more cost-cutting and you can’t buy back a whole lot more stock….
IBM Is A Poster Child For The Value-Destroying Relationship Between Corporate America And The Federal Reserve
- IBM has now seen ten consecutive quarters of falling sales. What has their response been? Financial engineering and more financial engineering.
- With IBM stock at a multi-year low, tens of billions in buyback dollars have been wasted. That capital might as well have been shoveled into a furnace.
- IBM is not a one-off. More likely a harbinger of dumb excess run amok, corporate America on the whole has gone down the financial engineering path.
Inflation Already Happened, U.S. Economy Strength No Reason To Buy, And QE4 Would Make Things Worse
Mon, Oct. 20 • 7 Comments
- With deflation the returning boogeyman, it’s amusing to watch the inflation debate.
- You have a group that essentially predicted, years ago, that disastrous inflation would come from the “money printing” of 2008 bailout efforts.
- Our somewhat unorthodox view: Inflation already happened. It was just channeled into financial engineering and the rise of paper assets!
Bear Market For Energy Stocks Is Here To Stay, S&P's 200-DMA Cross Foreshadows More Selling
- Forget mere correction — crisis is already here for publicly traded energy companies. The energy sector has now declined more than 20%, putting it in a full-fledged bear market.
- Saudi Arabia has committed to a dumping strategy of sorts, keeping markets flooded with supply in an attempt to hurt higher cost oil producers.
- The S&P’s breach of the 200-DMA could have accelerated selling impact in the short-term because so many money managers use the 200-DMA as a “do not cross" line.
Profitless IPOs, German Slowdown, U.S. Strength Foreshadow 'Brutal' 12 Months For Equities
- Premium stock valuations put the market in danger of an extended selloff.
- The Federal Reserve kept interest rates near zero for years, creating all kinds of credit distortions in an effort to jump-start the US economy.
- All of this activity, coupled with verbal support from global central banks and the psychological impact of QE, thus led to the incredibly extended valuations we now see.
Europe Woes, Small Cap Decline, Corporate Buyback Excess Fuels Deep Risk For Equities
- The euro has been facing a "plate glass" scenario - and the glass is now shattering. The euro is now likely to break below par ($1.00 US).
- Tuesday's support break in small caps could be a very, very big deal.
- Corporate buybacks have helped to fuel the rally, with S&P 500 companies spending 95% of profits on buybacks and payouts.
- The buy and hold era is over. Stormclouds and thunder and lightning are rolling in.
The Alibaba Debut Bears Uncanny Similarity To A Year 2007 Top Event
- Stephen A. Schwarzman was dubbed the "king" of private equity by Fortune magazine.
- Similarly, Jack Ma is now considered the "king" of e-commerce.
- Both companies' IPOs could wind up coinciding with a clear top for equity markets.
Not Even Wrong: Why Data-Mined Market Predictions Are Worse Than Useless
- The standard deviation for the S&P the past ten days has been the lowest in 15 years. One writer believes this creates an 89% chance of bullish action.
- This “89% chance” way of thinking makes no sense to us. In fact, we would consider it “not even wrong.”.
- The potential trajectory of equity markets is directly impacted by the trajectory of debt and currency markets (which are the opposite of boring now).
The Euro's Pain Is Just Beginning, And Passive Indexers Are Asking For A Punch In The Face
- The euro (EURUSD) saw its biggest single-day drop in years this past Thursday. ECB president Mario Draghi surprised investors with the aggressive nature of his actions.
- The story is nowhere near done. Europe is still asleep at the wheel… things will get much, much worse before they get better.
- The eurozone is at risk of a deflationary downward spiral. Deflation is very hard to reverse.
Market Outlook: Too Much!
- We see too much divergence, too much complacency, too much downside risk in this market.
- Small caps have broken trend while the Dow, S&P and Transports are near highs. The fed recently called out specific sectors as overvalued.
- Stocks have gone up by 107% when earnings increased by only 53%. There is too much risk in this market.
Large-Cap Breakout Failure Is Ominous For Bulls
- The divergence between large caps and small caps has been ominous in recent weeks.
- Today, large caps are breaking down - indicating a failed breakout.
- As investment managers unload risk, the breakdown in blue chip stocks could continue.
How Do We Know The Bull Market Isn't Over?
- Mark Dow states: The bull market is not over, but it’s not a smart time to press your bets. The longer (for) this limbo, the more attractive the upside will become.
- We say: How do we know it isn’t over? How does one quantify “over” versus “not over?"
- What if the upside to be patient here is not in longs, but shorts?
Your Favorite Beloved Tech Stock Was Just A Giant Macro Bet
- The high-beta tech group has been slaughtered, even though the major indices have held up well.
- Many investors are hoping for a comeback in these names.
- Beyond a certain valuation level, the growth story itself no longer matters. Only capital flows matter — which are a function of the macro picture.
Death Of The Omnipotent Central Bank Narrative
- The "Omnipotent Central Bank Narrative" has dominated markets for the past five years. It has driven anything and everything before it.
- The Omnipotent Central Bank Narrative is now drawing to a close. As equity markets cease to levitate, the mighty magicians lose their power.
- The Fed's power is linked to crisis prevention measures. And now with the U.S. economy on the mend, the morphine drip has been put on last call.
Repeat After Me: Boring Is The New Sexy
- High-beta social media, biotech and cloud stocks have experienced a blood bath.
- Yet large caps are within striking distance of all-time highs.
- A reversal of the Fed's zero interest rate policy should continue to drive capital out of speculative stocks.
China To Bypass The United States... Blah, Blah, Who Cares?
- The Economist reports that China will become the world's largest economy by the end of the year.
- But this moment in history is not the end of American dominance. If anything it is a beginning.
- Being big is not reason to brag, or a necessary source of power - especially if beset by crisis and troubles and constant fires to put out at home.
Herbalife: Advantage Ackman?
- In 2013, hedge fund managers Bill Ackman and Dan Loeb took opposite bets on Herbalife.
- Today, Herbalife's share buyback program has failed to materially boost the share price.
- Could hedge funds who were squeezing Ackman be using the share buyback as an opportunity to exit?.
Tim Cook, Macro Genius
- Apple has turned itself into a stable "widows & orphans" stock with stock split and dividend hike.
- Investor flight to safety favors stocks with strong cash flow and safe business model.
- Apple's surge does not reflect optimism for tech, but more capital flowing to safe businesses.
Sorry Twitter, They're Just Not That Into You
- We're short Twitter heading into earnings.
- A decisive shift in investor sentiment could send TWTR shares sharply lower.
- Lackluster user engagement has been a challenge for twitter and will likely continue to pressure shares.
Is Shorting China The New Widowmaker Trade?
- A crisis in China is coming - the only question is how big it will be.
- Timing is suspect and could be a long way off.
- Price action currently favors "wait and see" rather than bearish exposure.
The Dollar Is Quiet... Too Quiet
Tue, Apr. 29 • Comment!
- There is a significant sea change underway from "risk on" to "risk off."
- Markets will react to data from the Fed this week.
- The impact of sanctions on Russia is impacting capital flows.
- Never short a dull market - the U.S. dollar could be ready to move higher.
- Small caps and high beta tech names are in steep decline.
- Julian Robertson's "Tiger Cubs" are caught in the crosshairs.
- More selling could ensue as panic sets in and forced selling resumes.
- Consumer Retail Stocks - Return Of The Bear?
- Who Gets Hit By A Vulnerable Housing Market?
- Don't Underestimate The U.S. Dollar
- Behold The Apex Predator: 'The Everything Store: Jeff Bezos And The Age Of Amazon' Review
- Gold Is In The 'Too Hard Bucket'
- Australian Dollar Could Be Headed For Low 80s
- Tanker Stocks Have Triple-Digit Upside (If They Survive)
- Rare Earth Metals: Not For The Faint Of Heart
- Dry Bulk Shippers: Turnaround Or Mirage?
- Low Cost Airlines: 3 Key Threats To Profits