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  • Reading links on market direction.
     It’s been a while since I posted on market predictions from the financial gurus. This might be a critical time, with a few commentators warning that markets could be topping out in August.

    Well, this linkfest specifically focuses on market prognostications!

    • VALUE LINE HASN’T BEEN THIS BEARISH SINCE 2000 : Value Line reduced its recommended equity allocation to the range of 60% to 70%.This reflects a cautious to outright bearish posture on Value Line’s part, since the firm has never lowered its recommended allocation to below 50%. The last time it was lower than it is now was October 2000.?

      Value Line’s rationale for lowering its recommended equity allocation was not that the economic and financial news is about to take a big turn for the worse, however. Instead, the firm’s concern is that the stock market has rallied so far, so fast, that it has gotten too far ahead of itself.
    • Marc Faber: Expect a correction over the next 2 months.(CNBC)
    • Barry Ritholtz : I wouldn’t be surprised to see a 60-70-80 % rally before all this is over and the market rolls over and dies. This is a trading rally not a multi-year rally so it’s likely to end and retrace a part of it.

      Ritholtz has 1050-1080 as an upside target for the S&P 500, with a slight chance it can go as high as 1200 (It’s a low probability event). Making up 68% of loss is not unheard of. If the rally does extend to those outer limits, Ritholtz sees the Dow topping out "somewhere around 12,000.
    • Is this the start of the big one?

      I don't believe in market calls, and trying to time turns is a perilous game. But most savvy people I know have been skeptical of this rally, beyond the initial strong bounce off the bottom. It has not had the characteristics of a bull market. Volumes have been underwhelming, no new leadership group has emerged, and as greybeards like to point out, comparatively short, large amplitude rallies are a bear market speciality.
    • Top adviser turns bullish, for at most one quarter! (Well, I thought the headline was misleading, the advisor is actually BEARISH!)
    • Paul Tudor Jones on the bear market rally
      The bottom line is that we are not inclined to aggressively chase the market here. Rather, we eye a better opportunity to be long equities into year-end on a potential autumnal pullback.
    • Rounded Reversal into Exact Fibonacci Confluence on SPY
    • TOO FAR, TOO FAST? By Rob Arnott

      Now is not the time to be complacent. Most assets are no longer the bargains they were a few short months ago. As we have stated many times, tactical asset allocation is about taking risks when they are compensated and backing away when they are not. In some cases, the snapback has led risky asset classes like equities and high yield bonds to be susceptible to further price declines
    • Let’s play Ping Pong!

      The point here isn't so much to say, "Ah, prices are extreme and this is a top". Barring a market top, the extreme move from March, 2009 is indicative of two things: 1) the easy gains are behind us; and 2) the indices will likely move sideways to higher but in a more choppy fashion. If a market top comes out of this consolidation, it is likely to develop over the next several months. In general, market tops are affairs; market bottoms are events.
    • China Stocks Enter Bear Market as Index Falls 20% From High
    • More bearish data points for equities.
    • Manic Monday I'm sorry, the reality we see in the market does not justify options prices this high. Is there a reality in the market we don't see? Because if not, Fear is way too high, and anecdotally bullish.
    • Surprising sentimentHulbert :Sentiment picture has taken an unexpected turn for the better
    • Gummy Bears. Try not to overthink what the market might be saying. Cut in half from here? Unlikely.


    Check complete post here:

    Tags: SPY, FXI, markets
    Aug 26 9:14 PM | Link | Comment!
  • Bob Janjuah : Exit short positions if market crosses 1022 4 days in a row.

    Note: This post originally appeared here:

    Came across this David Tice interview, courtesy Pragcap.

    While the interview was standard David Tice fare, there was this quote from Bob Janjuah which caught my ears. (I’ve referred to his crash warnings earlier here. For an even better compendium, check out this FT Alphaville post.).


    IF market closes above 1022 for 4 days in a row, it is time to hit the exits.

    Note: Here "exit" refers to exiting from his short positions via stop loss. Basically, he's looking for a momentary spike to 1025-1050. If we can sustain above 1022 for 4 days, then it's time to exit short positions as another asset bubble is coming our way...

    Hmm..I guess we’ll find out soon enough! (Tuesday was the second day the markets did exactly that).

    PS: As I type this, the Asian markets are selling off. If the sell off should extend to the US markets and S&P 500 closes below 1022, then this count shall be reset to zero.. 

    Tags: SPY, markets, outlook
    Aug 25 5:04 PM | Link | Comment!
  • Book Review: Animal Spirits by Shiller and Akerlof

     "Some books are to be tasted; others swallowed; and some to be chewed and digested." 

    -Francis Bacon

    Animal Spirits clearly falls under the “chewed and digested” category. Economics is in a state of crisis and there's been much debate about the myth of efficient markets and rational human beings. This book presents a framework to explain the nature of markets, and the importance of human psychology in it. Don’t be fooled by the thin appearance! Instead of a quick read, you’ll find pages which challenge conventional wisdom every step of the way.

    The authors are famous economists. Mr. Akerlof won a Nobel Prize in 2001, while Robert Shiller first gained prominent recognition with his book “Irrational Exuberance”, which was published just before the stock market peak in 2000. The second edition, out in 2005, warned about the bursting of the housing bubble.

    So what are animal spirits? Animal spirits are essentially thought patterns that animate people’s ideas and feelings. The book describes five different aspects of animal spirits and how they affect economic decisions – confidence, fairness, corruption, money illusion and stories. Confidence is procyclical, and is similar to the Keynes multiplier. When confidence is up, asset prices start rising. Fairness basically influences wages. The authors consider whether concerns about fairness and social expectations trump the consequences of strictly economic motivations. Money illusion refers to the fact that participants can’t seem to see through inflation. “Stories” is a term to describe ideas that become widely accepted in the society. For instance, the internet mania in the late 90s and the “house prices never go down” mantra were widely accepted “stories”.

    The authors use their animal spirits theory to answer the following questions:
    "Why do economies fall into depression? Why do central bankers have power over the economy? Why are there people who can’t find a job? Why is there a tradeoff between inflation and unemployment in the long run? Why is saving for the future so arbitrary? Why are financial prices and corporate investments so volatile? Why do real estate markets go through cycles? Why does poverty persist for generations amongst disadvantaged minorities? “

    For instance, to explain why economies fall into depression, they show how the previous depressions in the US occurred due to fundamental changes in confidence in the economy, in the willingness to press pursuit of profit to antisocial limits, in money illusion, and in changes in the perception of economic fairness. Their discussion on the power of the central bankers is extremely relevant in today’s environment.

    The book makes a compelling case that it might be time to redesign financial regulations to take account of the animal spirits that often drive markets, to make markets work more effectively, and to minimize bailout costs. The question of animal spirits is important, as “the future of any country is in the hands of the business people who decide on investments, and it is in large measure dependent on their psychology."

    Some of the unresolved questions which the authors ask in conclusion are actually being addressed by the financial reforms currently being debated. While Animal Spirits may not provide a miracle-cure for our current predicament, it’s an important first-step in understanding the role of human psychology in driving our economy. On a scale of 1 to 10, where 10 would be a gastronomical delight, I’d give this one an 8. Go check it out!
    Jun 26 5:28 AM | Link | 1 Comment
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