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  • U.S. Economy: Halfway To A Recession Already [View article]
    Yes, even if you accept the published GDP, the moving average for the last several years is a little over 2% against an equities market that has been appreciating at about 20% annually even after factoring in inflation over the same period. Over the long haul, you can't have profit growth rate exceeding GDP growth rate when factoring inflation.
    Doug Short did a study on 10 year cyclical adjusted P/E (NYSEARCA:CAPE) and reversion to mean. Unless there is something fundamentally different, the S&P is likely to drop even lower than it did in 2009, at least adjusted for inflation and it will be many years before it recovers. We have a lot more commonality with Japan that most realize when factoring in demographics and the bubble situation. We may be looking at a depressed stock market for another 10 years. Its not unprecedented for even the US market to take 15 or even 20 years to reclaim a peak. This is the situation we may be looking at. Diversifying out of the US market to emerging economies or commodities and cold cash is probably not a bad idea right about now.
    Jul 30 03:04 AM | 2 Likes Like |Link to Comment
  • Twitter: D-Day Delayed Another Quarter [View article]
    I've heard the user data perspective on this but remain skeptical. In the end analysis, user data is just another component of ad revenue by enabling targeted marketing; there is a limit to how much companies can put out trying to sell products before it goes to diminishing returns. User data is getting to be a commodity among all of the social media firms and anybody can write an app to harvest huge amounts of user data that is already public through the tweets. Maybe Twitter is able to pull this off better than Facebook or Linked-In or other social media companies and they gain an edge, but it still seems unlikely that the revenue is going to justify the valuation in the foreseeable future.
    Jul 30 02:46 AM | Likes Like |Link to Comment
  • Twitter: D-Day Delayed Another Quarter [View article]
    I hear all the talk that Facebook, Twitter, Linked-In, NetFlix, Yelp, etc. are all going to come out of these huge valuations like Google or Apple. The problem is that there simply isn't room for consumers to provide the revenue that these companies are projecting from their valuations. Users will not put up with ad bombardment and have no loyalty to one company over another and social media technology endearment has peaked. Amazon is giving us a foretaste of the inevitable consequence of overvaluation. While CYNK was a pump-and-dump scheme, the unprecedented scale is a red flag.
    Twitter's market cap went up about 5.5 billion relative to an earnings beat of 30 million after hours, which is a factor of nearly 200. There isn't enough addressable revenue to support social media valuations which are stratospheric not just related to current revenues but future revenue potential -
    As a whole the valuation is going to go much further south even if one or two of the companies hold up. Will be interesting to see what is left of the social media market in another 12 months or so.
    There is an awful lot of market cap relative to demographic-based profit potential for the foreseeable future. If profits can't keep up with valuation, eventually valuations fall, particularly if much of the valuation is built upon leverage as is the case with record high margin debt on the books and low interest rates that will not stay low forever and consumer spending peaked out due to inflationary pressures, low labor participation, high debt load, and low wage growth. Social Media bubble is getting ready to lead the way in popping the overall equities bubble.
    Jul 29 09:10 PM | 3 Likes Like |Link to Comment
  • The Day I Sold Everything [View article]
    I've been saying market has been overvalued for a long time (too long), but pigs do eventually get slaughtered. And the market tends to punish retail the hardest, so it seems likely there will be the expected correction that will be big enough for people to see it as a buying opportunity, but not so large as to scare people out of the market. After that comes the slaughter and the slow downward wind-down.

    I just don't see enough positives to get out of the same type of cycle that occurred in 2000 and 2007 and there are a lot of the same type of negatives, just manifested in different ways (i.e. instead of housing bubble, you have interest rate bubble, student loan bubble, and car loan bubble) and GDP/record low labor participation, record high margin debt are all warning flags. Institutional and insiders have also been leaving at high rate and despite the fact that many are still fearful to get back in, sentiment surveys have been high and volatility is near record lows. Demographics are bad. The only real wealth accumulation is happening in equities, not in actual income and practical living costs are getting worse despite the low inflation (i.e. price of gas, food). Cyclical P/E is getting extreme and the measure always returns to the mean.

    I could go on, anybody who studies the fundamentals and US demographics honestly has to admit this market has very little in common with the boom of the 90s and looks an awful lot like another big correction is coming over the next couple years, even if not as bad as 2008, it may be close. It still feels like a cyclical bull inside a secular bear that needs another reset. A sustainable bull doesn't seem possible until interest rates and over-leveraging returns to more normal historical levels and the demographic effects of retiring boomers subsides.

    I think we will know in the next 12 months if a never-ending rising market is really going to be the new normal. I'm skeptical.
    Jul 26 12:23 AM | 3 Likes Like |Link to Comment
  • Recent Changes At The Margin Suggest Bulls May Be Gaining Ground [View article]
    The start date of the last recession was December, 2007 - 6 1/2 years ago.
    May 26 12:30 AM | Likes Like |Link to Comment
  • Creating The Next Financial Crisis [View article]
    Great article, I agree. However, I think we may get hit with a recession that almost nobody expects and a pop in the equities bubble by the end of this year. A bad Q3 for whatever reason will mean 2 out of 3 negative GDP quarters which I think qualifies as the start of a recession. Everybody expects the Fed to keep the economy and markets up forever, but the reality is that policy just moves the problem around without any underlying structural change. The economy is based on 70% consumer spending and consumers are squeezed between stealth inflation in energy and food and stagnating wage growth.
    Increasing asset prices are past the point of providing a wealth effect since cashing assets into real money becomes a downward force generating declining asset prices. Much of the assets held by individuals as well as corporations are leveraged through credit. Unwinding assets therefore generates a negative wealth-effect for those that are over-leveraged.
    May 10 08:25 PM | 3 Likes Like |Link to Comment
  • ISM Services Was A Good Data Point Showing The Economy Is Not Falling Into An Abyss [View instapost]
    I'm skeptical that this report necessarily bodes well for the economy because inventory is also going up and consumer spending stagnated in April. A lot of service activity is in US healthcare which is not an exportable product and the costs of that will create a drag on potential consumer spending for durable items. It seems that some of the activity was driven by over-optimism.
    May 10 08:14 PM | Likes Like |Link to Comment
  • An Overdue Major Stock-Market Selloff Is Looming [View article]
    Markets are designed to punish the impatient, greedy and fearful and make fools out of the majority of retail traders. There has been high expectation of a minor correction for quite a while. Because it has not happened, a lot of retail buyers have lost patience and bought near the top even while institutions and insiders have been selling off in record numbers. Also, a lot of retail buyers are just waiting to buy on the next dip, even if it is only 5%.
    I think the most damaging scenario is a decaying market over the next few years that keeps getting bought on the dips but slowly descends until it ultimately ends up being far lower than anybody expects. Most everybody seems to be a buyer if a 20% dip as they think that is as low as it can go, but what if it ultimately ends up dropping by 60 or 70%? Then those bargains don't look so good.
    The fundamentals are certainly in place to support an extreme drop over next couple of years - stagnant wage growth, declining labor participation, diminished consumer spending capability, record margin debt, declining revenue growth, poor demographic outlook, record P/E ratios based on CAPE, and extreme complacency. Rather than a quick crash/rebound, a long-term downward trend of lower highs and lows over a couple years seems more likely. Each new low will be perceived as a great buying opportunity and then disappoint.
    May 10 07:56 PM | 7 Likes Like |Link to Comment
  • Bearish On The Market? Russell 2000 Better Short Than S&P 500 [View article]
    Heywally, granted it is difficult to time a down market, but i'm not sure that timing the market up is that much safer - how does one really know when the dust settles and when to safely enter? Quite a few false bottoms were called for the 2008 - 2009 correction.
    Shorting can be done with stop limits just like longing. If both macro and technical indicators are negative, riding the roller coaster down makes sense to me and could be even more profitable than riding up. The main issue is to have a hedge for what could possible drive up equity prices. It seems logical that the only two factors which could hold up equity prices are more FED intervention driving interest rates down even further or outright inflation. Demographics do not support significant economic growth and corporate revenue growth rates are decreasing.
    Based on that a hedge would be something that could benefit from inflation such as gold and emerging markets and another hedge on long-term US treasuries. Since January 2014, shorting small caps with 50% of capital while holding gold, long-term treasuries, and emerging markets for the other 50% would have done about twice as good as holding the S&P.
    May 9 12:22 AM | Likes Like |Link to Comment
  • Something Concerning To Think About [View article]
    snoopy44, thanks for telling it the way it is, so many seem to just take the stats provided by the talking heads at face value without really looking under the hood.
    May 9 12:11 AM | Likes Like |Link to Comment
  • The Crash No One Is Talking About [View article]
    I think the commitment of the FED to the stock market is over-rated. Call me cynical, but the real commitment unfortunately seems more to further emasculate the middle class and enrich the elites. I think a market crash that hurts retail after the smart money has left is in the cards.
    Ultimately, the debt issue needs to be resolved and the best way for the US to retain power is through USD remaining world currency. One way to resolve it will be to force the commoners to buy bonds in retirement funds and outlaw stocks or funds based on stocks for 401K because they are deemed too risky by the government. The mentality now is that the government is there to protect us. What better justification for such a policy than a dramatic stock market crash? The infrastructure is already being laid with the Obama MyRA program.
    May 9 12:06 AM | Likes Like |Link to Comment
  • The Bear Inverse Bubble [View article]
    Morningside, Obviously, Michael wasn't suggesting a day trade but a longer-term strategy. Since the article EEM is up 1% and IWM is down 3%. The net result of longing EEM and shorting IWM since then is about the same as staying long on the S&P so a strategy based on his advice hasn't lost any ground.
    Michael, what is your time horizon for this - does investing in emerging markets still make sense given the global risks from the Ukraine situation? Do emerging markets have less to lose than developed nations if the situation escalates?
    May 8 11:54 PM | Likes Like |Link to Comment
  • Small caps paint scary technical picture [View news story]
    IWM About to enter the fast track down to 97.5 (10% drop - first target for H&S decline) and NASDAQ looks poised to follow the same pattern and other indexes to suffer collateral damage. Defensive stocks down today along with Russel and NasDaq while Dow up, so the defensive rotation play is ending.
    I expect a macro trigger in next couple of days to fire off the technical move. Full-scale war in Ukraine seems the most likely trigger with the market damage arising from escalating sanctions/counter-sanc... between US and Russia elevating commodity prices and stressing global economy. Watch out for cascading effects on Europe that could make the decline even larger and more prolonged before any meaningful bounce. Low VIX shows market has not priced in any meaningful correction.
    May 8 11:33 PM | Likes Like |Link to Comment
  • QE? We Don't Need No Stinkin' QE! [View article]
    I think the reason that the treasuries have fallen when QE has not been applied is because of the flight to risk-off - rises in equity prices have been closely correlated to QE announcements and actions while declines in the equity market have correlated to the prior endings of the QE programs.
    What this most likely means is that with QE coming off, stock prices will decline, drawing more to treasuries until equity prices go down to be closer to the longer-term valuations that have historically been correct (i.e. Schiller P/E rather than the other methods often used to justify current equity prices).
    I think interest rates continue to stay low until near the end of a major stock market correction (one that rivals that of 2008 - 2009). As equity prices bottom out, interest rates will once again start rising. In the meantime, the yield curve in terms of 5 year versus 30 year may flatten much more. This has already flattened by 50% with the 5 year around 1.7 and the 30 year around 3.3. Around a year ago, the 5/30 were .75 to 3.0, so in just 12 months the ratio has been cut in half.
    May 8 02:06 AM | 2 Likes Like |Link to Comment
  • A Once In Few Years Opportunity Presents Itself [View article]
    As far as TVIX vs. VXX, the decay isn't as bad with VXX. On the year, VXX is down about 2%, but TVIX is down 11%.

    So it's safer to use VXX unless you get in right when the spike is starting plus TVIX probably won't give you 2X of VXX unless you enter and exit with perfect timing.
    Apr 28 05:29 PM | 1 Like Like |Link to Comment