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Joseph Stuber
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Joseph has been an analyst, investor, and student of economic theory; money and banking; and statistical methods for evaluating and implementing risk/reward trading algorithms since 1972. Joseph is also an occasional contributor to financial publications and his essays are frequently cited by... More
  • Friday's Stock Market Ramp – The Latest In A Long Litany Of Market Manipulations 44 comments
    Jul 7, 2013 12:57 AM

    Let's get one thing straight - the jobs number had nothing to do with the spike in stocks on Friday. Here's the e-mini S&P futures contract:

    (click to enlarge)

    The market was being pushed higher in the futures market from Wednesday's close on into Thursday. Draghi's comments caused the euro to sell off hard and futures spiked to the upside. Then futures spiked higher again just ahead of the report and moved a little higher in a knee jerk response after the release of the report only to fall hard thereafter moving into negative territory on the day.

    I didn't think Draghi's comments justified the spike in futures but at least I understood the move so no complaints on that one. I also understood the market's move higher ahead of the report - again no problem. I even understood the knee jerk move higher on the number - after all it was a pretty decent number.

    The sell off after the report came out made sense - take a look at what happened to the dollar after the number was released:

    (click to enlarge)

    Strong dollar/weak stocks - that has been the correlation for some time now but not Friday. Well, actually stocks did fall as the dollar moved higher before reversing direction. Here's the next chart that suggests Friday's spike in stocks was less than rational:

    (click to enlarge)

    Here's how the logic goes with the bond market - good jobs report means the Fed will taper sooner rather than later. So the initial response to the jobs report was that the S&P sold off 20 plus points, the dollar spiked higher by 60 plus cents and the bond market fell by about 1.40.

    Here's the RBOB gasoline futures - another negative that didn't seem to matter to stocks:

    (click to enlarge)

    Are we to assume that the stock market reacted positively to higher gasoline prices? A bit of a stretch in my mind.

    Here's the problem as I see it - the job's report was good enough to drive interest rates sharply higher in anticipation of the Fed's tapering sooner rather than later. High interest rates are a huge negative for stocks. It certainly won't help credit sales and a large percentage of consumer purchases over a few hundred dollars are credit sales. Housing will be hurt of course as will auto sales. Oh, and the spike in gasoline won't help stocks much as fuel costs will take a bigger cut out of disposable income leaving less for other purchases. And the higher dollar has a decidedly dampening effect on inflation - not a good situation for stocks.

    Actually the jobs report wasn't all that great anyway. U4 which includes the headline number plus discouraged workers was 8.4% - up from 7.7% in May. U5 which includes U4 plus the marginally attached was 9.3% - up from 8.5% in May. And finally, U6 was 14.6% - up from 13.4% in May.

    Let's call a spade a spade - I am a very frustrated bear. When I see a market move that is wholly irrational as was Friday's spike in stocks as every other market moved in a rational fashion I get frustrated but I also start asking questions as I want to know who spiked the market and why they did it. Regardless of what the pundits say we are in a huge mess and we are not growing this economy and all other markets seem to be getting it but the Bernanke bull in stocks remains oblivious to reality.

    There will be those who argue that point citing things such as auto sales or the improvement in housing metrics or a one month spike in consumer spending or some other metric but the truth is we are suffering from disinflation, slowing GDP, serious unemployment issues that aren't responding to stimulus and the problem is global in scope. The idea that US stocks are a good buy at these levels as we are the best of the worst is utter nonsense. We are not going to move higher based on deteriorating economic metrics domestically and globally just because we are bad but not as bad as everyone else.

    So who caused stocks to spike on Friday and why did they do it? Suffice it to say that it was somebody with the resources needed to stand in the gap and diffuse the sell off by bidding stocks up as the market sold off. Whoever it was they didn't just stabilize the market - they bid it up on purpose and very aggressively. They were not taking advantage of a great buying opportunity - they were purposely driving the bid higher to defend the market and keep it from going into free fall.

    Granted the market on Friday was a low volume day but it still took a lot of money to fade the trend. More importantly they never stopped pushing as they continued to buy and continued to raise the bid all the way into the close.

    Here's the point - I am really not used to being wrong on a market call. For instance in October of last year I wrote Making A Case For Buying The US Dollar Now. Here's the chart on the dollar (NYSEARCA:UUP):

    (click to enlarge)

    The long dollar call was a good one although there were a few gyrations along the way thanks to the sharp spike in the euro followed by the BOJ's move to devalue the yen. The call wasn't made based on the currency shifts in the euro and the yen though. It was in anticipation of deleveraging and disinflation in the US economy.

    My short gold call was based on the same premise - disinflation and eventually deflation in the US economy. Here is one of many comments I made on gold and this one dates back to October 9 of last year. It is the first comment I made on gold:

    Seems to me the trajectory of the dollar is higher in spite of current monetary policy. Perhaps I am a little simplistic here but short of an agreement to set the price of gold how does the price of gold go up if the dollar gains in value?

    Here is the chart on (NYSEARCA:GLD):

    (click to enlarge)

    I made a number of comments on gold and have been advising my "gold bug" readers to get out of gold for a number of months now. Here's another one from November of last year:

    I don't see any asset class doing that well in the next 6 to 12 months. I certainly don't see a weak dollar - to the contrary, I see the dollar strengthening. That doesn't do much for Gold.

    Not sure how long corporate bonds can hold value. At some point interest rates will move higher - even in US.

    Here is the bond chart (NYSEARCA:TLT):

    (click to enlarge)

    I was a little late on the bond call and it's been an erratic ride but again not a bad call especially in light of the Fed's persistent attempts to keep rates low and bonds high. All in all not great calls perhaps but at least I got the general trajectory of the market right.

    Back on September 18 of last year I made this comment on Apple (NASDAQ:AAPL):

    Does anybody give any thought to the idea that a global slow down is really happening. I think there are a lot of factors that are about to cause the public to run for cover.

    I think iPhone sales are going to suffer. Price has to play a part here.

    Am I wrong?

    Here is the Apple chart:

    (click to enlarge)

    The Apple call was a pretty good one and based on the "global slowdown" that was quite apparent back in September of last year. Additionally the short call was based on the idea that Apple would need to become more competitive on price and would lose market share going forward.

    Here's the thing that makes me angry - things aren't getting better. The gold market tells us we are rapidly approaching a deflation problem. GDP printed flat in the 4th quarter of last year. Barclay's 2nd quarter GDP estimate has been lowered to 1.0%: That works out to a 3 quarter average of just 1.1% if the estimate is right.

    Here's what the BEA reported on June 26:

    • Real disposable personal income-personal income adjusted for taxes and inflation-fell 8.6 percent in the first quarter.
    • Personal savings as a percent of disposable personal income was 2.5 percent, compared with 5.3 percent in the fourth quarter.
    • Corporate profits fell 1.4% at a quarterly rate in the first quarter.
    • Profits of nonfinancial corporations fell 0.5 percent at a quarterly rate in the first quarter, and profits of financial corporations fell 0.8 percent. Profits from the rest of the world fell 4.3%.

    Looking at these metrics one has to ask - why did stocks rally on Friday while all other markets reacted as expected? More to the point - who back stopped the free fall and then drove prices higher right into the close with ever increasing bids? And finally why did they do it and on a very thinly traded post holiday session?

    Some have called this the most hated bull market of all time and I agree. It isn't hated for the reasons so many claim though. I don't hate it because I missed the rally - I hate it because it is contrived, fake, phony and manipulated. Friday's ramp in the face of falling bonds, rising dollar and rising fuel prices is a solid testament to the truth that this market is being manipulated.

    I believe the markets should reflect the truth. The stock market is not doing that. Stocks are supposed to price in future expectations - that is the way the market normally works. This market is clearly not doing that as GDP, corporate profits and disposable incomes are falling right in the face of a stock market that refuses to correct.

    The answer as to who is doing this seems obvious to me - the primary dealer banks acting as surrogates for the Fed are doing it. I can't even fathom anyone else attempting to orchestrate a corner on a market on such a grand scale.

    Here is a look at the S&P (NYSEARCA:SPY) just to put things in perspective:

    (click to enlarge)

    What's most significant to me about this chart is the way the market has been propped up each time after falling back to the 50 day MA and how the market actually exceeded the 2 standard deviation band for multiple days suggesting a very overbought market. It was only when the Fed started to leak hints of a pending taper of QE that the market moved back below the 2 standard deviation band.

    Another point of great interest is the Fed's move to QE4 at a time when Congress was debating the matter of the fiscal cliff. The fiscal cliff was a very serious matter as Congress was dealing with the debt and deficit. At the time it was assumed - and rightly so - that if Congress elected to tackle the deficit with tax hikes and spending cuts that the economic contraction would be severe.

    The truth is we did go most of the way over the fiscal cliff as we did hike taxes and the sequestration cuts did become reality. It is also true that it has had an impact on the economy. You can listen all you want to the slow growth rhetoric but the truth is we are likely to see a 3 quarter average on GDP of just 1%. That is not the kind of economic conditions that typify a raging bull market yet that is exactly what we have had.

    Here is what disturbs me - the pundits claimed that Congress avoided the devastation of the fiscal cliff and it is my opinion that the Fed announced QE4 to push money into stocks through the Fed's primary dealers in conjunction with the announcement that the fiscal cliff fiasco had been averted. The truth is we didn't avoid the fiscal cliff and GDP reflects that fact.

    Notwithstanding that truth from the first of the year forward the market hugged the 2 standard deviation band and every sell off was back stopped at the 50 day MA. The overzealous market participants pushed stocks on low volume to all time highs and into overbought territory. It is my opinion that Friday's ramp in the face of falling bonds, rising fuel prices and falling gold prices was another attempt by the Fed's surrogate at micro managing stock price to prevent a free fall in stocks.

    Here is the most important question though - why are they doing it? My own opinion is that the primary dealer banks may have some serious exposure to stocks and of such a magnitude that it could once again be of systemically significant proportion. Couple that with the banks exposure to bonds that are falling rapidly and the big banks may very well be right back where they were before the 2008 crash.

    You can argue this if you wish and at this point I can only set forth suppositions but for my money it is really hard to explain the move in stocks on Friday in the face of so many negatives. And it is particularly hard to explain these one day counter cyclical moves when the market appears to be in position to sell off hard.

    Could it be that the big banks have once again moved us to the brink of disaster and the only way they can avert it is to keep stocks in a state of suspended animation? I am open to any other plausible explanation one might offer but in my 40 years in the business I have never seen a market so contrived and so reluctant to sell off - even in the face of rapidly deteriorating economies across the globe.

    Disclosure: I am long VXX, FAZ, TZA, TECS.

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Comments (44)
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  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » Would you please click on the like button as it is the only way for me to know if anyone actually reads these blog posts.

     

    JS
    7 Jul 2013, 01:04 AM Reply Like
  • tampat
    , contributor
    Comments (998) | Send Message
     
    JS,

     

    Am just curious, but doesn't SA have a way to give you number of page views?
    Thanks for the article, they are always of interest.
    7 Jul 2013, 07:40 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (4329) | Send Message
     
    The rise was curious in it's rapidness. One explanation given for the tail of it was when it hit 1625-1626 which is over the MA50, algos were triggered to buy. Makes sense to me.

     

    I'm not as inclined to believe conspiracy theories. Though unlike the "Beranke not at Jackson Hole as part of creating a single global currency" theory of your prior article... this theory has banks moving for their own motivations, so it's more possible. I'm not able to give a counter explanation. I'd want to look though. I'm just not that big a believer in mass conspiracies & hidden movements. (With subprimes, it wasn't hidden, just ignored.) The idea that the banks are too invested in stocks doesn't work for me - they can sell for profit & that's that. Bonds too involve rising rates, & it's not a problem to banks if stock market bond funds & held bond principle values are falling as rates rise. They're the lenders, not the holders of bonds.

     

    I'd fully agree the hate of this rally is because of it's manipulation, not the missing of it. Everyone I know who missed it, still doesn't know it existed. My frustration in a short time of paying attention, has been with the irrationality. For example I used to know how bonds & stocks moved relative to each other. Now I have to use convoluted logic about bad news is good & worry about major rapid selloffs in bonds... While I'm not big on conspiracies, there's been the other manipulations. Stocks are going down - so the Fed has an associated person at WSJ write a blog. Stocks are climbing exuborantly & someone else speaks. The overall design is all about the Fed & not letting the economy be priced in properly.
    7 Jul 2013, 08:55 AM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » curis

     

    "The idea that the banks are too invested in stocks doesn't work for me - they can sell for profit & that's that."

     

    That is not even true in a normal market but certainly not true when liquidity disappears. The sheer size of the holdings of some primary dealers, institutional investors and funds precludes the sale of all their holdings. An institutional investor may wish to sell 2,000,000 shares of a company but they won't just go into the market with a market order as they would crush the stock in the process of filling the order.

     

    The seller may go to a market maker and accept a final price of the 30 day volume weighted average price. That way the market maker can feed sell orders into the market over time. That's the way it works - it isn't sell 2,000,000 shares at the market.

     

    The market volume has been very low in relative terms and only liquid for smaller orders. It is entirely feasible that large holders of stocks are finding it very difficult to exit.

     

    The largest institutional investor of Google holds 18,000,000 shares - Fridays total Google volume was around 1,700,000 shares. The smallest holding of Google in the top 10 is almost 4,000,000 shares.

     

    It wasn't long ago that a roughly 40,000 share order crashed Google by 3% in one second. Tell me then how these holdings are liquidated in this thin volume market without crashing it.

     

    JS
    7 Jul 2013, 09:15 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (4329) | Send Message
     
    I wasn't suggesting going to the market one day to sell, lol. There's been plenty of days & time to off load in chunks. You describe a way for an large seller to do it - hand off to a market maker & let them do it over time.

     

    Your counter scenario is too extreme for me... a total massive counter plan & huge movement, rather than a gradual mini-pump & dump slow sell off.
    7 Jul 2013, 09:31 AM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » curis

     

    Here's my point in the article. If the primary dealer banks have been aggressive buyers of stock in off balance sheet trades and they have - at least to some degree - and the economic metrics begin to deteriorate rapidly they may have a strong inclination to exit these trades.

     

    At extreme market prices like we have today and at extreme multiples like we have today the numbers of interested buyers shrink and the number of interested sellers increase. That is an imbalance in the market that makes it very difficult to sell.

     

    The largest institutional investor in Google holds 40,000,000 shares. If Google had a really dismal earnings report there is no way these shares could be sold at anywhere close to current price. The average volume in Google is in the 2,000,000 share range. It would mean that the 40,000,000 shares would absorb 100% of the volume in Google for a full month.

     

    Again, a 40,000 share order crashed Google not to long ago in a mini flash crash. As I recall the order was pulled before it was filled and the price stabilized. It is a hell of a conundrum for these bigger players.

     

    It also provides ample incentive to back stop modest sell offs out of fear that it will escalate into a rush to the exit type situation where there are no bids under the market and liquidity disappears.

     

    The scenario may seem extreme to you but the Apple and gold sell off probably seemed extreme as well. It is what happens when market makers lose control of a market.

     

    JS
    7 Jul 2013, 09:51 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (4329) | Send Message
     
    The Apple & gold sell off didn't seem extreme at all to me. They are natural market movements.

     

    1) One assumption underlying your scenario is that a good number of big investors suddenly got very bearish & need to get out. Surveys of MMs & investors, & clues from advisors... put many maybe even the majority at still bullish. It may seem illogical to you (& I'm a bit more bear than bull) but they aren't us.

     

    2) Google is an individual stock. Using them as indication of the market as a whole doesn't fully carry over. A bad earnings by google would lead to big sell off ... of google. The market isn't showing massive bad earnings across the board at least not at this point. It's the same anemic it's been for the whole bull.

     

    I see no real indication that a great deal of stock needs to be sold. Nor that bigger players experienced in the market would get worried over a small down day (right after a holiday). Everyone in media would write it off as the "not stuck before a weekend" myth & it wouldn't impact Monday.

     

    There was definite Fed manipulation of every time it's a big up series of days & every time there's a down series. They bring out the "right" speaker to manipulation the market as they need to. I see worry in how Friday's market went... and would happily look around for how that came to be & if there was any manipulation... I can't go as far as that there's a massive propping up in a unison based on same goals by bigger banks. At this point they still have time to get out before Sept, even assuming they want to get out. I want another angle to this theory.

     

    I appreciate you're putting out of ideas like this. I happen not to see it all the same way -- so I'm just posting for the benefits that discussion provides at giving me ideas to counter mine.
    7 Jul 2013, 10:34 AM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » curis

     

    "I happen not to see it all the same way -- so I'm just posting for the benefits that discussion provides at giving me ideas to counter mine."

     

    Works for me. Differing views are what makes a market. Thanks for the input.

     

    JS
    7 Jul 2013, 10:42 AM Reply Like
  • Seth Walters
    , contributor
    Comments (675) | Send Message
     
    If the market is being deliberately kept inflated, it may not actually cost much for the people inflating it to do that. In fact, the failure of the market to sell off will just make a lot of bears throw in the towel and make it easier and easier to keep it from selling off. We've seen 100 Bn dollar companies like AMZN reach a 3,000 P/E ratio and plenty with negative earnings trade at a high value. If the manipulators are able to condition people into seeing that no news will cause a really steep plunge, they may be able to slowly unload their holdings over a period of years before it is really allowed to crash. Everyone - even people outside of the financial world - knows that the economy is crap and not getting any better. Everyone knows that what little GDP growth we've had has been on the back of unprecedented accumulation of debt, and that this accumulation is not free. Finally, it is possible that the manipulators want to keep the market high simply to offer US companies a relative capital raising advantage to the rest of the world, and that they are actually acting on the orders of the Fed to do so.
    7 Jul 2013, 01:55 PM Reply Like
  • Flash Crash Gordon
    , contributor
    Comments (411) | Send Message
     
    JS

     

    Remember that the mid-week holiday added to even less liquidity in the market, and fewer players around. If someone is looking to dump shares, they certainly weren't going to do so on July 3rd or 5th.

     

    Also, I think people are underestimating the impact of money flow out of everything not-USA into the USA. The USD is bid, US equities are bid, as the European periphery shows signs of destabilization, the veil of Chinese growth seems on the verge of being lifted, and bond markets are signaling potential for near term chaos. Add to that the geopolitical unrest in and around major oil producing nations pushing up the price of crude and gasoline, continued lackluster employment/growth, and you have a recipe for disaster in a system that is still ill from too much debt/leverage.

     

    Stay the bear course, my friend...until something should remotely suggest otherwise...
    7 Jul 2013, 02:12 PM Reply Like
  • Bill J
    , contributor
    Comments (24) | Send Message
     
    I guess the thing that bothers me a bit is simple. If the Fed can pull enough strings to cause a run up in the face of some truly ugly realities, what's to stop them in the future from doing the same thing again and again and again. QEternity. My standing thesis has been that we will not have a significant market correction as long as the Fed prints. Yeah, it's illogical, irrational, nonsensical. That doesn't matter to a computer program's buying program. If the cash is available seemingly without limit, buy!
    One thought came to mind. JS, I've read what I can about your methods for determining turning points using multiple standard deviation lines. There is no question that it works and works well on individual stocks, i.e. AAPL. Might it be that it works less well on total markets composed of thousands of stocks? Have you researched that as well as individual stocks? Just curious.
    Bill
    7 Jul 2013, 02:31 PM Reply Like
  • vladkri
    , contributor
    Comments (238) | Send Message
     
    Works on indexes too. Not all of them though. E.g. for energy stocks (XEG.TO) does not work at all. Also, performance changes in time.
    7 Jul 2013, 03:19 PM Reply Like
  • Robert Duval
    , contributor
    Comments (4440) | Send Message
     
    The Fed is not printing. It is a simple asset swap. Read Cullen Roche. If the Fed was printing, gold would be going bonkers.
    7 Jul 2013, 04:14 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » Macro

     

    Here is the entry on a QE transaction:

     

    Fed - Debit to appropriate securities account/Credit to bank reserves

     

    Bank - Debit to cash or reserves/credit to appropriate securities account

     

    In other words a simple asset swap as you say and no impact to M2. However, there are a lot of things going on off balance sheet through asset leverage. That explains why gold is falling and stocks are rising. The multiplier effect is in full play in the shadow system but doesn't show up in M2 and is not inflationary unless they count stock price increase into the numbers.

     

    JS
    7 Jul 2013, 04:35 PM Reply Like
  • wenlock00
    , contributor
    Comments (55) | Send Message
     
    Will we ever get to see a 'Snowden' of the markets, explaining manipulation?
    7 Jul 2013, 04:39 PM Reply Like
  • Robert Duval
    , contributor
    Comments (4440) | Send Message
     
    JS -- 2 points -- first is a large allocation out of EM markets, to us markets.

     

    Second is a trend of reduced supply -- due to share buybacks. This is a major component -- we are not seeing reams of ipos - but the opposite.

     

    Third -- the 10 year has had quite a spike -- but is still a lower yield than in 2010 - 2011.
    7 Jul 2013, 07:05 PM Reply Like
  • Rolytee
    , contributor
    Comments (31) | Send Message
     
    JS

     

    Another great article. As a fellow bear I share your frustration. Friday should not have unfolded as it did... everything made sense until around 10:30am at which point we entered the realm of unicorns and rainbows. There is no macro data supporting this relentless bull market in equities, nor was there anything in Friday's data to support a 1% ramp in stocks on the day. The global economy is sick... lots of headwinds which are generally reflected in most global equity markets, except the US, which over the past 6-12 months has over-performed on a relative basis. The argument that the US economy is relatively stronger or somehow different doesn't pass the 'sniff test' - the data you cite clearly shows the issues which continue to persist in the economy.

     

    Your theory on market manipulation makes a lot of sense. The lack of broad-based conviction in this bull based on the very low volumes in recent weeks suggests that such manipulation is plausible. At some point though, market forces will overwhelm the interventionists, particularly if corporate earnings continue to disappoint, which seems likely. The sell-offs which occurred recently at much higher volumes than the slow grind upwards suggests that we must be very close to a top and that the market will become increasingly more difficult to control.

     

    Another factor to consider at this point is the 'prisoners dilemma' situation developing for those who must be holding very large equity exposures in relatively over-valued stocks and ETFs. Your point about very thin markets on some of the big names in the indexes is well taken... at some point the old axiom of "he who panics first, panics best" will begin to come into play. Who knows when that will eventually happen, but when it does, it will be particularly brutal thanks to the distortions, interventions, and manipulations of the recent past.
    7 Jul 2013, 07:16 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » Roly

     

    Great comment. I particularly liked the part about "he who panics first, panics best." As you say this is a no volume bull and part of the reason I think some major players are stuck and have no way to take profit without crashing this market - therefore they continue to back stop all sell offs.

     

    JS
    7 Jul 2013, 09:20 PM Reply Like
  • vladkri
    , contributor
    Comments (238) | Send Message
     
    On top of that, whoever is doing it is forced to load up on total junk being dumped by insiders. Here is example from another thread at SA. LinkedIn insiders sold $200M worth of stock in the same quarters the company made $300M in revenues(!). Not a single large cap stock is allowed to drop for any reason. Unless, of course, it goes completely bankrupt, which I contend is the required catalyst for the leverage to start unwinding.
    7 Jul 2013, 10:02 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » Vlad

     

    I agree with your point on the large caps. Not sure what you mean by completely bankrupt though. Do you think they will just keep accepting junk to keep the market propped? Don't you think they will reach a limit? I think at some point one of these manipulators is going to decide the situation is hopeless and bail. That is when it is all over

     

    JS

     

    JS
    7 Jul 2013, 10:51 PM Reply Like
  • Alpha Man
    , contributor
    Comments (261) | Send Message
     
    JS,

     

    The most important thing to remember is, You are right, the market is wrong, just keep repeating that, it will help you hold on to your position. Another tip, strap that tin foil helmet a little tighter, then they can't read your thoughts!

     

    AM
    7 Jul 2013, 10:14 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » Alpha

     

    You know I have hung around for about 9 months now and I have continued to explain what I think is going on in the stock market. I've taken my fair share of criticims from those who hold your view.

     

    Here's my question to you - I assume you are long the market so at what point will you decide to exit your longs relative to the S&P? If we move to 1500 will you remain in your trades? 1400? 1300? 1200? In other words assuming we do sell off hard when do you throw in the towel?

     

    It is a fair question and deserves an answer I think?

     

    JS
    7 Jul 2013, 11:26 PM Reply Like
  • sjjm3
    , contributor
    Comments (17) | Send Message
     
    AM,

     

    Very intelligent response. Thanks for contributing in a meaningful way. Well done. I am sure readers of JS article can't wait to see what you have to say next.
    7 Jul 2013, 11:06 PM Reply Like
  • sjjm3
    , contributor
    Comments (17) | Send Message
     
    JS,

     

    I share your positions on the economy and its disconnect with the markets. I too, am a very frustrated bear. The source of my bearishness is my connection to the transportation industry that is generally a leading economic indicator. The industry has been flat for the last 3 years and it feels like it is about to roll over as it did in 2007-8 as there are no catalysts for trucking companies to buy more trucks.

     

    That is to say, without substantial infrastructure building, home construction, coal mining and other energy activity, trucking will contract. Trucking does not contract or remain flat in a growing economy. Truck purchases explode 6 to 9 months prior to a recovery. There is no sign of a recovery in sight.

     

    The poor economic numbers are real. GDP is flat, prices are high on things we need like gas, food, clothing, and health care not to mention all taxes are up this year as well. All loan rates indexed to treasuries will go up increasing the cost of debt for individuals and businesses. Unemployment is high and labor participation is low. The biggest consumer population in history is retiring at a record pace and their kids, while educated, are unemployed, in debt and not ready to invest.

     

    Conclusion: I am bearish on the global and US economy therefore bearish on the markets. I am long SRTY and NUGT.

     

    sjjm3
    7 Jul 2013, 11:08 PM Reply Like
  • Ranma
    , contributor
    Comments (1841) | Send Message
     
    Gold also had a suspect chart on Friday. A sudden take down on jobs report followed by a narrow trading range with squashed attempts to bounce every time each time GLD hit 117.60s. Until the end up day when they all scrambled to cover.
    7 Jul 2013, 11:12 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5298) | Send Message
     
    Joseph
    your comment
    "Here's the point - I am really not used to being wrong on a market call."
    May I suggest you please advise your readers of your incorrect market calls to date..

     

    You are either are in serious denial with that statement or just continue to trumpet your incorrect views.

     

    By the way here is what happened on Friday , not some conspiracy nonsense as suggested here

     

    Copied from a blog post here on SA after friday's close:

     

    Lots of preset "trading programs" key in on moving averages. There is plenty of action around them and in the case of Friday my guess is that some "buy" programs were set off late in the day when the S & P 50 day MA cleared the 1626 level. Then a quick run to 1632 in the final 15 min. followed. Conversely my guess is that there were "sell" programs triggered earlier in the day when the averages rallied there, then fell back.. Guess u can say in the end the buy programs won out..

     

    Maybe someday u will be right about the markets, but to date your market predictions are sorrowful, your facts , not mine..
    8 Jul 2013, 02:38 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » F&G

     

    "May I suggest you please advise your readers of your incorrect market calls to date."

     

    Did you even read the article? I've made calls on bonds, gold, Apple, the US dollar and the broad stock market. All in articles and numerous comments. I have had a number of traders offer thanks for my calls on gold by the way.

     

    I have been wrong on the broad market and readily admit as much - no denying that and I said so in the body of this article so what exactly is your point.

     

    Let me say it again - my call on Apple was a great one, my call on gold a very good one. Bond call was decent. My call on stocks has been wrong to date. Where do you disagree?

     

    JS
    8 Jul 2013, 06:10 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5298) | Send Message
     
    Joseph,

     

    Where do i disagree ?? , with all of your market calls, all of your calls for a market correction all of your calls for the next "crisis" . These are your facts that have been wrong to date.. Yours , not mine..

     

    To now cite a couple of calls On AAPL, Gold, , well sir, respectfully, they simply don't " make up " for the sorrowful performance to date.

     

    Speaking on Gold, would u like to review some of the comments you stated in other articles that as the markets "fall Apart" gold will be a safe haven ?

     

    Simply nothing new here but the same rhetoric. Now u try to dissuade readers with your "many good calls" ?? Most can see thru this charade.

     

    Any followers of your articles , is barely viable, , don't u remember the short positions you advised ??

     

    Definition of good -- to be desired or approved ,

     

    sorry that doesn't apply here..

     

    Along with your conspiracy theories on last fridays market action.. Another theory that has no merit (remember cyprus ) That sir is only one of many of your theories that turned out to be ridiculously false.
    8 Jul 2013, 06:23 PM Reply Like
  • vladkri
    , contributor
    Comments (238) | Send Message
     
    Short SPY has been stopped out today.
    8 Jul 2013, 06:25 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » F&G

     

    Well I am sure my readers appreciate your bullish views and I assume you are warning them not to follow my advice. All comments are welcome so I will continue to call it as I see it and you are welcome to disagree with my views.

     

    If it turns out that some of the fundamentals such as a contraction in GDP, shrinking disposable income, historical lows on PCE, recession in the EZ, China's slowdown, shrinking corporate sales and profits actually prove to matter in the end and this market eventually stops going up as the economies around the globe fall apart and markets actually crash as I predict will you show up to criticize me then. I doubt it as you were pretty scarce of late as the market sold off but seem to have resurfaced based on the latest rally.

     

    By the way can you sight some metrics that are more compelling for your view that the ones I site for mine?

     

    JS
    8 Jul 2013, 06:39 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5298) | Send Message
     
    Joseph,
    I wasn't scarce when the markets sold off as i have been calling for a healthy pullback for quite some time.. My comments lately have been to harvest more profits, sell upside calls for income, They are there for all to see, In fact , i now see that meaningful correction just ahead.. However it will be contained in the context of the secular bull market we are in. After this pullback markets will set new all time highs , either later this year or early '14, Now its just a matter of timing and magnitude of pullback..

     

    On the contrary i suspect you will be out an about claiming victory on any pullback , Your crash scenario is far fetched now, just as it was last year.

     

    The metrics that you now cite are the same that have been trumpeted over & over. Citing metrics so far hasn't achieved profits, only failed predictions.

     

    The markets don't trade on absolutes , only change . A change for the better.. Scoff if you will, believe & cite all the metrics you wish , the markets have and will continue to trade on that premise.

     

    I believe and have stated earlier that you are a very intelligent individual , however understanding the psychology of the markets are a very different matter.

     

    The markets will turn when there is an overwhelming "feel good" mentality.. It is at that time when everyone will turn and say "I dont get it all is well what is happening" " Why is the market down " Sound familiar ? We are nowhere near that .. The secular bull has plenty of run left.. bumps along the way , but more upside.

     

    if I see a change u will be the first to know. Right now that thesis is still intact.

     

    Now I could be wrong about that expected pullback , we might just trade as '95 where pullbacks were contained to 5% , but I'm not playing it that way.. Either way profits wil be garnered on the eventual upside.
    8 Jul 2013, 08:02 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » F&G

     

    "After this pullback markets will set new all time highs , either later this year or early '14, Now its just a matter of timing and magnitude of pullback"

     

    You can have that view if you want. And I can choose to differ with it if I want.

     

    By the way I believe in the fundamentals and as you point out they haven't mattered so far. The reason isn't a mad passion for stocks by investors though as this is historically unprecedented in terms of being the most impressive move up on declining volume of all time.

     

    One thing for sure - I can't predict how long the manipulators will be able to keep the charade alive. Maybe we will push stocks to dotcom buble multipes before it is over - who knows.

     

    In the meantime let's agree to disagree.

     

    JS
    8 Jul 2013, 08:20 PM Reply Like
  • ba419adv
    , contributor
    Comments (222) | Send Message
     
    JS I look forward to each of your articles. I don't always agree with you but respect your reasoning most of the time. I think there are forces at work but not a conspiracy. Because of the Fed and Central Bank interest rate manipulation worldwide the markets are not acting naturally. But they may be acting rationally. Other than in stocks and their derivatives, meaningful returns are difficult to impossible to find. Real estate has reacted to the artificially low rates as well. When the Fed and world Central Banks finally are unable to continue to keep rates low the consequences will be swift and large.

     

    Since most western nations have large debt to service the return to normal rates will have severe consequences to national budgets. What will happen in the private and public sectors could have dire consequences. The only way we got out of high debt levels after WWII was through high growth in the economy. That doesn't seem to be in the cards this time around.
    8 Jul 2013, 03:36 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » ba

     

    Thanks for the comments but I do want to differentiate between a conspiracy and market manipulation. One of the Fed's main tools is open market action in the bond market. In other words they try to manipulate things in a way that produces the desired outcome. That is not in my mind a conspiracy.

     

    The difference today is that they have taken open market actions to include stocks. They also do the same with currencies - that is what the Fed does. They always have but they have no business in the stock market - that is unprecedneted and really not allowed by law.

     

    I just think the point needs to be made that Fed manipulation is not a conspiracy.

     

    JS
    8 Jul 2013, 06:17 PM Reply Like
  • ba419adv
    , contributor
    Comments (222) | Send Message
     
    JS

     

    My point exactly, if inarticulately expressed, manipulation not conspiracy. This current manipulation by the FED and world central banks is more extreme than the norm, but interest rate manipulation by these institutions is normal. Thus no conspiracy.

     

    I believe this extreme action by the central banks is in response to extreme fear on their part about the US and developed world economies. Their extreme fear; worldwide depression and deflation. So far the US and world economy has been able to achieve only modest growth with this extremely accommodative FED policy. Deflation has been held at bay. What remains to be seen is whether this policy has cured the economy or merely kept it on life support.

     

    As to why the market continues to go up, the FED wants it to and will do whatever it can to continue to support it. There is a limit to what the FED can continue to do because of rising interest rates. As I stated in my first comment, the US federal budget cannot stand a large rise in interest rates because of the high debt levels. So ,in my opinion, equity investors will continue to play the market as long as the Fed can support it. It may be a game of financial chicken, but it is working so far. Investors may not understand the true risks involved in this game of chicken. Thus when the game ends it may get very ugly in the stock market.
    9 Jul 2013, 11:19 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (4329) | Send Message
     
    Definition of conspiracy theory
    "A belief that some covert but influential organization is responsible for an unexplained event."
    (Source: googled "conspiracy theory definition")

     

    In fact your explanation is that in the background an unexpected source for this market movement - big banks - are manipulating the market covertly.

     

    So your article fits the definition of conspiracy theory.

     

    All of the others of your articles that I've read also contained some covert manipulation that wasn't a direct part of the overt manipulation we can all see the Fed doing.

     

    Fed manipulation that is publicly visible (even if it's plan & process is obscure & hard to figure out) is not a conspiracy theory. That's correct. Your article though doesn't point to some public behavior of the Fed as the manipulation here.

     

    ...just saying...

     

    So some will appreciate the conspiracy ideas. Others like me tend to veer away from such explanations.
    8 Jul 2013, 06:54 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » curis

     

    I am fine with that and see your point. Perhaps the most credible source in my camp on this is David Stockman who explains it pretty much as I do but perhaps more eloquently. I quoted him in my last article on this point.

     

    Many tend to veer away from the views I present and I understand that but I still think my logic is presented well and I still don't have anyone who can offer a better supposition than the one I set forth for why the market refuses to correct in the face of really horrible economic metrics.

     

    I always ask those who are bullish to tell me why and they never can seem to provide a good answer. Perhaps you can tell me why you "veer away from such explanations" and I ask that as all information helps to inform me and I am really interested in why you feel this way.

     

    JS
    JS
    8 Jul 2013, 07:29 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (4329) | Send Message
     
    1) I was primarily commenting on what is a conspiracy theory. So on that we now agree.

     

    2) To answer why on veering away... in my life my observation is that whys for things are rarely genuinely some secret manipulation behind the scenes. Life & people are more chaotic & discoordinated than that. In the end there are almost always other explanations than something as dramatic as implying the banks are somehow acting on behalf of the Fed (or any conspiracy explanation). Selfish focus of a big bank doesn't coordinate with anyone including the Fed.

     

    I've said earlier that I don't see evidence they want out of the market. Nor that they'd have trouble getting out slowly. So the second reason you gave (that they need to in order to get out cleanly) doesn't happen in my view.

     

    I find F&G's idea of computer triggers off MAs adequate for Friday's behavior.

     

    On the general climb up, I'm somewhat bear, so I can't answer logically. To me this all makes no sense based on the economy. On the illogical why - it's that people including big banks, saw a bull, think it's still continuing & are on board for it.

     

    Also this bull involved private but regular investors & professional. It did not involve a lot of the on the side private investors. Most private were & still are not in the market because of their last decade's experiences. They'd rather sit in cash with zero interest. So the usual reason for the end of a bull (them joining), didn't happen, so the usual reason for start of a bear (them leaving) isn't happening. And professionals & regulars are more diehards at staying in for the fun of the bull.

     

    Those are my first thoughts, though I'm sure i have more.
    8 Jul 2013, 07:54 PM Reply Like
  • Joseph Stuber
    , contributor
    Comments (1716) | Send Message
     
    Author’s reply » curis

     

    Thanks for the viewpoint. I obviously don't agree with it but that is OK. Here is what I see - any move that is based on a false premise will correct rapidly when it finally starts and can fall a lot further than it probably should.

     

    You know all my points and choose to reject them and that is fine. I still think I am right and only time will tell.

     

    Thanks for the response.

     

    JS
    8 Jul 2013, 08:26 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (4329) | Send Message
     
    "Here is what I see - any move that is based on a false premise will correct rapidly when it finally starts and can fall a lot further than it probably should."

     

    I agree with that. My views in response to yours doesn't touch on nor disagree with that. I moved into cash in May. I'd like to make short term bets over the rest of this month. I expect by Sept some kind of panic to take things down at least a bit. I base that on the obvious reaction to the Fed even if the reaction is irrational, not on anything hidden.

     

    I expect the fallout from all the false premises to appear in 2014 or 2015 when everything looks fine & no one's expecting it, & then one day reality will suddenly catch up & start counting again.

     

    Can you tell me what in my views here you think are inaccurate?
    8 Jul 2013, 08:44 PM Reply Like
  • Mike Down Under
    , contributor
    Comments (73) | Send Message
     
    Hi Joseph,

     

    and thank you for having the courage of your convictions.

     

    I think that Noam Chomsky noted, when the soviet union failed, that western liberal democracies would,no longer having a yardstick against which to measure their own blatant manipulations,move perilously close to a command style economy and therefore,become more and more interventionist.

     

    This has proven a very prescient observation.As the market and reality continue to diverge at crazy levels,cooler heads will prevail,tin foil hats and all.

     

    Precious metals and the commodity complex in general are leading us forward and down into the valley of the shadow.They are the canaries in this very deep coal mine.And despite a counter trend rally at present,I'm unsure that the fall is complete.

     

    Right now feels eerily like 2007 minus the backslapping and volume.

     

    How can this end, in any sense,well?

     

    I think that it is thankless but extremely important to have conflicting views to those with vested interests and their unquestioning beliefs in a disastrously flawed system.

     

    Chinese Whispers hint at greater liquidity as I write and I don't know if the PBOC is about to follow every other central banks lead but only the very optically challenged could see this as a good thing.

     

    The world is going to an Orwellian hell in a hand basket and only the doublespeak of stock market shills and fund managers can paint these very bearish developments in 'Bad news is good news' terms.

     

    My last comment is a question,

     

    Why have the global central bankers cartel gone to such extraordinary and unprecedented lengths to drive world equity prices higher,if everything is so great and their previous attempts have worked so well?

     

    Thanks again Joseph and I think that time(and I'm not talking years here,weeks,maybe months)before your contrary and to some, unpopular views, will be well and truly vindicated.
    11 Jul 2013, 02:09 AM Reply Like
  • vladkri
    , contributor
    Comments (238) | Send Message
     
    In the meantime, I've been busy last few days taking losses on most short positions from SPY to QQQ, financials to oil. Every one of them. Today all indices are up again, Mighty Ben's push I guess.
    11 Jul 2013, 07:36 AM Reply Like
  • glaserdx
    , contributor
    Comments (211) | Send Message
     
    JS
    You are one of my favorite contributors to SA and I look forward to reading your articles. I actively search for them if for nothing else than for a non-conventional viewpoint that is cogently, logically expressed. I read your articles because there is a market erudition that informs them. You have a breadth of knowledge about how markets actually work that I find helpful.

     

    In my opinion you should spend less time engaging your detractors who claim they are "right" and you are/have been "wrong". The don't see the valuable information you bring to the discussion.
    11 Jul 2013, 06:47 PM Reply Like
  • tampat
    , contributor
    Comments (998) | Send Message
     
    Joe,

     

    Agree with glaserdx.
    11 Jul 2013, 06:53 PM Reply Like
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