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Michael Clark
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Michael J. Clark was born and raised in Sinclair, Wyoming. He is a poet, novelist, artist, historian, and market analyst. His fine arts portfolio can be found at the following address: http://www.hoalantrangallery.com/MJC2.htm His writing portfolio can be found at:... More
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  • MARKET CORRECTION, OR JUST A WARNING SHOT ACROSS THE BOW? 4 comments
    Jul 27, 2014 5:20 AM

    Let's not get hysterical. Ok. No hysteria.

    We have all watched this market climb relentlessly against all odds. Even as macroeconomic growth has sputtered, as America has limped unevenly toward recovery, as China has panicked to cover-up a massive debt-bubble and an imploding housing market, as Europe has sank deeper and deeper into a dual economy of haves and have-not nations.

    Even as American and International companies have continued to perform poorly in the actual marketplace (think of CAT, IBM, Philips), no longer able to sell their products to a contracting world marketplace, stock prices levitate near 52 week highs, resisting all attempts at correction. This is, of course, because of Fed intervention -- Fed BAILOUTS for Wall Street -- providing tiny interest loans that allow companies to buy up their own shares and thereby reduce the float of shares to cover up a loss of real earning/revenue momentum. I have demonstrated all this in earlier posts, but I will recap it here.

    Generally speaking, when a company is losing earnings/revenue growth, it can either tell the truth or they can take on more debt (IBM, for instance, has taken on 49% more debt from 2009-20014 in order to cover up 8 consecutive quarters of weaker growth) to cover this up, by reducing the number of shares being traded.

    Example:

    MSFT had revenues of $17 billion in 2012 and 8,330,000,000 outstanding shares. If we divide the earnings by the number of shares we get Earnings Per Share (which is different than simply earnings, of course -- and this difference allows a lot of manipulation, as we will show).

    $17,000,000,000 divided by 8,330,000,000 equals $2.04 EPS.

    $16,000,000,000 divided by 8,330,000,000 equals $1.92 EPS -- a loss of 6% on a loss of $1 billion in revenues.

    $16,000,000,000 divided by 7,330,000,000 equals $2.189 EPS -- a gain of 26% on $1 billion loss in revenues and a (with increased debt) reduction of shares from 8.3 billion to 7.3 billion.

    I won't keep harping on this. But the Fed is provided WELFARE FOR THE RICH -- in trillions of dollars -- on a continuing basis -- with all its QE projects and with ZIRP, more debt for the rich in all countries, courtesy of the US taxpayer. When the country eventually wakes up, we will need to find a way to get this money returned to us.

    Today I want to look at where the market seems to be at this moment. I have been bearish intellectually and emotionally since 2001 -- but not technically. Clearly, when one has indicators that scream BULL one cannot ignore them. I have never seen a market as bullish as this one. Every little dip is quickly overwhelmed with excess liquidity.

    Of course the Fed is also actively manipulating markets, selling gold futures, short-selling gold ETFs, hammering the VIX, buying S&P futures contract on the first sign of a correction. Should we talk about the morality of this? Even the legality of this? The FED is tilting the playing field in favor of one side of the market over the other side. I think the Supreme Court might find this illegal, and might limit the capacity of the FED to fix markets. But who is going to sue the FED? The FED might even argue that it is its job to FIX markets during times of stress. It is a lame argument to those of us who feel the FED's job, duty, is to balance extreme markets by raising interest rates when there is panic buying (as there has been for years now) and to lower interest rates when there is panic saving). Notice panic selling in the market is not the same as panic saving. By panic saving I mean historic markets in which interest rates are so high that no one will go near equities markets because...well, there is no need of the risk. Panic saving does not occur ever in low-interest rate environments.

    Anyway, back to our theme. I keep a database (one of many) with only inverse etfs, issues that become positive as shorts on the markets. I look at this database every day in terms of one of my better indicators, which measures intermediate-to-long-term-trend, which I will show in the charts below.

    For many months now, none of the shorts have been positive -- that is, they are all in the 'long position'. Then YCS, short the Japanese Yen, and JGBS, Short Japanese Government Bonds went positive -- in the 'short' position. Then VIX flicked over, right before it jumped up.

    During the most recent Small Cap correction, this indicator went positive. And it has gone positive again.

    Let's look at charts.

    TWM is a Small Cap Short ETF. Look at two things: 1) the blue line in the top pane. This is the indicator I have been discussing: "M2F ALT Trend Look-Back Plus" (I apologize for the name). When this indicator goes positive, there will almost always be a move up. How long this move lasts is not possible to know. 2) the brown line overlaying the price module, second pane down. "CGTS Old #1". This indicator does not so much mimic the price moves, but tends to predict them. This indicator is now in a steep climb.

    This is a warning shot across the bow for those holding small cap stocks.

    (click to enlarge)

    Ok, so this is a warning shot for small caps. Our datase has 39 inverse etfs, and only 4 are positive -- in the 'short position'. That seems pretty insignificant.

    What else is short? Oil. The double-short OIL ETF, DTO, is also short. Is a collapsing oil price, if it occurs, bearish for stocks? Not necessarily.

    (click to enlarge)

    I mentioned the VIX. The VIX is a measure of volatility through put options versus call option ratio. A climbing VIX has historically indicated a bearishness for stocks. Of course, the FED now knows how to manipulate markets by manipulating such indicators, so many historical indicators no longer work as they once did. The GDP is also manipulable, in much the same way that company buy-backs manipulate the truth about honest earnings growth of companies, debt-spending manipulates the truth about honest economic growth. The FED does not seem to appreciate that they can manipulate the indicators without affecting the underlying reality. They can bend the yield curve artificially, but the economy does not respond to the manipulation of this indictor, which is not the CAUSE of the economic damage, but the efffect of the economic weakness.

    The VIX:

    (click to enlarge)

    Looking primarily at the brown line overlaying the second pane price pattern, the VIX is in a bullish pattern in terms of CGTS OLD #1. What does this mean? Time will tell. It depends largely on the future habits and utterances of a seemingly kindly old woman in the FED Chair (behind the curtain in Wonderland) who claims she cares about the poor and the unemployed but whose actions scream her allegiance to the rich and powerful. If she raises rates, all hell could break loose. All hell could break loose anyway. All hell is breaking loose in Eastern Europe, the Middle East, Western Africa...and the reaction of the rich and famous, the beautiful people, has been a self-interested yawn.

    The VIX in 2011 did show a similar CGTS Old #1 uptrend, which was followed by a dancing idiot VIX for a few months. Was that one of those places when QE (Welfare for the Rich Corporations) was in PAUSE?

    (click to enlarge)

    I won't suggest that we are entering troubled waters AGAIN. My belief that the markets are fair is no longer intact. My belief now is that the selfish rich fix the markets for their own benefit, and allow 'disciples' and admirers to tag along for the ride.

    It is a dangerous game the central banks play; historically, this type of unfair manipulation of the poor by the rich has led to violent political reactions ("get out the gallows team!"), which will wipe the stupid grin off the faces of Paulson, Greenspan, Bernanke, Yellen types quickly.

    In the meantime, this is just a warning of a shot across the bow.

    Michael J. Clark, CGTS

    Hanoi, Vietnam

    27 July 2014

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Comments (4)
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  • Teutonic Knight
    , contributor
    Comments (3264) | Send Message
     
    Hello Professor Clark, hope all is well with you in subtropical Hanoi!

     

    Let me just add a few thoughts whilst no one had commented on such a well-written and well-thought article. (No surprise!)

     

    First, echoing the theme of your treatise, I view the current 'atmosphere' of the financial community here in the United States as akin to that news story by Mike Wallace on CBS TV circa 1989 after the burst of the Japanese housing bubble and the ensuing financial meltdown.

     

    An unemployed young Tokyo Japanese man living with his parents and other siblings (as customarily in the Far East) had to put on his jacket, shirt and tie every morning and pretended to go back to work. The cultural pressures to 'conform' to peer pressure so overwhelming, he even proceeded to board the subway, went downtown, and just hanged around enough to come home as if having finished a day's work at the office!

     

    The financial engineering that you described being orchestrated by the ruling elites creates a similar enormous hushing and contriving effect on the masses of the financial sector, the brokerage part of it alone entailing a whopping ~$500B per annum.

     

    And so it is no wonder that everyone seems to behave like the poor Japanese man! It is a one-way street, tell lies, and more and more lies!

     

    You writing reminds me of the John the Baptist though. a 'Voice in the Wilderness'.
    Unfortunately, John was martyred.
    9 Aug 2014, 03:04 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11120) | Send Message
     
    Author’s reply » Teutonic Knight: I appreciate your thoughts and your description of the 'social lie' that keeps everyone quiet. Sleep-walking. Horrible things happen in a society that is sleep walking. People disappear, as you note, often by the thousands, sometimes by the millions. John the Baptist being one such fellow, who continued to comment on reality until the power brokers decided to shut him up.

     

    When I wrote this, four Inverse ETFs had turned positive -- were in the short position.

     

    Today, ten of 39 are posiitve -- short position.

     

    TWM Short Russell 2000 Index ETF Daily
    MZZ Short Midcap Index ETF Daily
    BZQ Short Brazil Shares ETF
    DTO Short (Double Short) Oil
    SDP Short utilities ETF Daily
    SDD Short Small Cap Index ETF Daily
    EPV Short MSCI Europe ETF
    ^VIX CRB Volatility Index Daily -- I consider VIX a short on stocks
    YCS Short Japanese Yen
    JGBS Short Japanese Govt Bonds

     

    More warning shots across the bow.

     

    I hope you are well.

     

    Michael
    10 Aug 2014, 03:06 AM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3264) | Send Message
     
    Michael, thanks for your thought-provoking comment, as always. Ah yes, inverse funds, the mere mention of them got my blood running in my veins!

     

    But Michael, allow a word from an old friend: It is still a little too early. As Jesus said, shortly before his arrest, my time has not come....

     

    So tread carefully, and be cautious, as the Infidels are not done yet..

     

    TK
    12 Aug 2014, 04:44 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11120) | Send Message
     
    Author’s reply » Could not agree more, TK.
    13 Aug 2014, 01:15 AM Reply Like
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