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CautiousInvestor

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  • Wall Street Breakfast: IBM To Unload Semiconductor Unit - Report [View article]
    From Yardeni:

    The big dive in the 10-year Treasury bond yield last week pushed the 30-year mortgage rate below 4.00% for the first time since May 28, 2013. That drop could revive mortgage refinancing activity, providing another windfall for consumers. In addition, housing starts, which have stalled around 1.0 million units for the past year, might move higher.

    Even more stimulative for housing activity may be the government’s push to allow Fannie Mae and Freddie Mac to lower lending standards and restrictions on borrowers with weak credit. Lenders would also be protected from claims of making bad loans, according to a 10/17 WSJ article. Déjà vu all over again: The government encouraged sub-prime lending during the previous decade, and it ended very badly. In any event, here we go again: The two biggest assemblers of mortgage-backed securities--that will now be explicitly guaranteed by the government rather than implicitly, as before--“are considering programs that would make it easier for lenders to offer mortgages with down payments of as little as 3% for some borrowers.”
    Oct 20 06:59 AM | 4 Likes Like |Link to Comment
  • Weighing The Week Ahead: Is The Stock Market Correction Over? [View article]
    http://on.ft.com/1nvEoud

    The round of central bankers’ supportive comments “smells of a co-ordinated attack to help boost declining sentiment”, said Adrian Miller, director of fixed-income strategy at GMP Securities. “Markets need to check into the Betty Ford Center and go into rehab, to wean themselves off this addiction to central bank support. If that means more volatility and lower prices in some asset classes, so be it.”

    World central bankers may have a tough time checking out of Hotel California
    Oct 19 09:09 AM | 1 Like Like |Link to Comment
  • Weighing The Week Ahead: Is The Stock Market Correction Over? [View article]
    Thanks Jeff for another fine installment of WTWA. I think last week's and this week's headlines are inexorably linked and ultimately guidance will assist in answering the many unknowns.

    It was a wild, volatile week and we did approach the edge of a correction. Intra day moves peaked at 2020 and bottomed this past weak at 1820, exactly a 10% drop. Much of the buying and selling was highly technical working off key support and resistance levels.

    When the bottom was in it has hit and go leaving a long buying tail, setting the stage for further moves up reinforced from incoherent noise from Fed officials. And technically the market was and remains heavily over sold providing grounds for further gains.

    With respect to the 200 DMA, we will certainly get there and likely breach it but I'm not sure it will hold unless earnings guidance is strong which is likely doubtful as global growth is slowing, there are wafts of disinflation, the dollar is stronger and geopolitical risks continue to mount.

    Everybody is looking forward and is eager to be reassured. Guidance, more than ever, will solidly trump earnings but with 46% of S&P earnings coming from overseas it may be tough to reach the bar. We do not want a raft of guidance of the type afforded by Ford and MCHP.

    Lastly, a number of risk on measures do not support this move up and keep your eye on Greece as they are entertaining some stupid moves.
    Oct 19 08:02 AM | 3 Likes Like |Link to Comment
  • Weighing The Week Ahead: Can Earnings Season Reverse The Stock Market Decline? [View article]
    By many accounts the market is extremely oversold with several measures of breadth and inversion of the VIX term structure offering firm support for this view. But the fact we are close to violating the 200 DMA complicates the analysis because the resolution can take several paths. It can move up and then reverse course and breach the 200 DMA; it can simply fall though; or it can be protracted affair with chop and consolidation and a retest of the 200 dma. To support what bbro said, in most cases and certainly recent cases, a breach of the 200 DMA is not the end of the world and may present a buying opportunity after resolution of the breach. In recent times (last three) resolution has resulted in the index falling 20 to 105 points below the 200 DMA before regaining traction and moving higher. And Dana Lyons observes that two or more 90% selling days (90% volume in declining stocks) within three weeks can be very bullish. We have had these. Lastly, October is a very volatile month and many market corrections have reached their respective lows late in the month.
    Oct 12 12:51 PM | 10 Likes Like |Link to Comment
  • Weighing The Week Ahead: Will Global Weakness Drag Down The U.S. Economy? [View article]
    Thanks Jeff for another fine installment of WTWA.

    Just about every multilateral economic organization has warned of either global growth divergences or slowing global growth or both. And Goldman recently released an updated version of their GLI (Global Leading Indicator) showing growth has slowed to 2.6% while noting the world economy has entered a "slowdown" phase.

    Obviously, any slowdown would pose a threat to US growth, corporate growth and US corporate profits derived through exports at a time when the dollar is rising. And with valuations somewhat stretched and margins likely maxed out, sales growth is likely to be the limiting factor for equity appreciation. This is important, as the consensus expects earnings to grow at 12% rate in 2015.

    I don't know whether the market sees a disconnect explaining recent divergences, but divergences are growing and internals are breaking down. For example, the percent of constituents of the S&P 500 trading above their respective 200 DMA has been generally falling and market tops are being at lower levels.

    When the market made a high last July the percent of stocks trading above their 200 DMA was around 85 while the most recent top was made with 77% of the stocks trading above their respective 200 DMA.

    I think some of the weakness in measures of breadth are related to the fact that fewer of the S&P 500 stocks are making the big gains, a divergence impacting breadth. The OEF (largest 100 cap stocks in the 500) has outperformed he broader index since July, making for intra market divergence. It's like a feedback loop.
    Oct 5 10:16 AM | 2 Likes Like |Link to Comment
  • Wall Street Breakfast: Tesla To Unveil 'D' And Something Else [View article]
    Yesterdays carnage was largelt a result of mounting concerns global growth is faltering. Global PMI's have been less than inspiring. The ECB just announced it is keeping rates where they are but later in the day will give further details on its asset purchase program. But with gaping holes in European bank balance sheets, it's highly unlikely any fresh funds will be used to make loans. They will buy sovereign debt in advance of the forthcoming stress test to be overseen by the ECB but conducted by Oliver Wyman which suggests the exercise is window dressing. From EUObserver:

    Oliver Wyman is a known name in the world of eurozone bailouts and bank "stress tests."

    Back in 2006, it famously said the Anglo Irish Bank was the best bank in the world. Three years later, the bank had to be nationalised and almost bankrupted the Irish state, which then needed a eurozone bailout.


    Last year in the Spanish bank bailout, Oliver Wyman provided eurozone decision-makers with the numbers they expected and which were politically acceptable - around €60 billion instead of a much larger gap that the banks actually had.

    CI here. Obviously the EU is not serious about undertaking the difficult reforms needed to restore growth and vitality in essentially lifeless economies.
    Oct 2 08:08 AM | 3 Likes Like |Link to Comment
  • Wall Street Breakfast: Ebola Stocks Surge After U.S. Case Confirmed [View article]
    The hubris of all this is numbing. It's simply dumb to think the ECB can buy "safer" slices of Greek and Cypriot asset backed securities. In name they may be safer but recent history should remind us that all of this slicing and dicing often offers the unexpected. And once the Greek and Cypriot get their hands on the proceeds of any sale, they will buy soveriegn bonds..........not make new loans.
    Oct 1 09:20 AM | 3 Likes Like |Link to Comment
  • Wall Street Breakfast: Argentina Held In Contempt By NY Judge [View article]
    I know what you are saying but they are doing everything posssible to make it worse. Failure to implement promised reforms and rigid immigration policies are causing acute economic pain. They have lousy demographics but their policies amplify their unfavorable circumstances.
    Sep 30 09:55 AM | 2 Likes Like |Link to Comment
  • Wall Street Breakfast: Argentina Held In Contempt By NY Judge [View article]
    Until recently, the last hike in Japan's VAT was in 1997 and it increase to 5% from 3% and almost immediately afterwards, Japan plunged into a deep recession with a lasting impact: the country has struggled to escape the trap of deflation, or decreasing prices, almost yearly every since.

    More recently, Japan increased its VAT from 5% to 8% with highly predictable outcomes based upon based past experience. Industrial production collapsed in July falling 1.5% while leaving the ratio of inventories to shipments at its highest level since August 2012. That was before Mr Abe arrived on the scene with a promise of unlimited stimulus to banish deflation.

    As the article notes personal consumption expenditures cratered, falling 4.7% while marking the fifth consecutive monthly decline. Behind this contraction in spending is the decline in real incomes as seen in wages falling 2.6%, marking a 14th consecutive monthly decline.

    Against this alarming backdrop, Japanese leaders are planning with the second increase in the VAT from 8% to 10% but may introduce a package of fiscal stimulus to offset the negative impact of a hikes in the VAT.

    The VAT is being increased to improve structural budget issues but if you increase spending to offset the contracting effects of the VAT increase it would appear you are treading water which is exactly what Japan has been doing for decades.
    Sep 30 08:54 AM | 2 Likes Like |Link to Comment
  • The Big Kahuna Korrection, Or Buy Yom Kippur? [View article]
    A very thoughful and comprehensive analysis Cam. The low percentage of S&P constituents trading avove their 20 DMA (about 20%) and the extreme of the 10-day average of the SPX cumulative advance-decline line lend support to the view that in the short term the market is oversold. But the percentage of stocks above their 50 DMA, VIX, VIX term structure and your favorite indicator all suggest there is more room to the downside. Thanks for article and the details of your favoite indicator.
    Sep 28 03:19 PM | Likes Like |Link to Comment
  • Weighing The Week Ahead: Investor Lessons From This Week's Data Deluge [View article]
    Thanks Jeff for another thoughtful and insight-packed issue of WTWA.

    From my perch, the really big things to be nervous about include the rising dollar, falling commodity prices, China's re balancing, sclerotic growth throughout Europe, geo political instability and falling interest rates. According to the IMF, world CPI down-ticked to 3.2% during July while the inflation rate for advanced economies was just 1.6% y/y. That’s the 27th consecutive month of readings under 2%.

    Some of these larger picture developments are spilling into US markets where we have seen large and mega cap stocks hit new highs while small cap stocks, energy stocks, developed & emerging international stocks and most commodity sector have shown weakness. Divergences are broadening and the larger threats to US markets are largely exogenous.

    In the near term, the divergences with small stocks may be the most threatening although this could be easily debated. Anyway, our friends at 361 Capital offered this one of their recent notes: We noted in March that the world was going to get more difficult for small caps. Historically high valuations combined with spikes in volatility are never a good sign. Since March, Small Caps have only continued to under perform as the summer doldrums grabbed hold. If Small Caps are to reverse their under performance, it should happen in the Q4 as year-end seasonal trends tend to strongly benefit risk and smaller cap equities. If not, then this key thermometer of risk could be sending investors a bigger signal.

    Offsetting this possible dire warning is the fact that the S&P 500 has not declined in the twelve months following a mid-term election since 1946.
    Sep 28 08:53 AM | 5 Likes Like |Link to Comment
  • Wall Street Breakfast: Global Markets Digest Slide In U.S. [View article]
    Japan is a simply a mess with subdued retail spending, falling real incomes and persistent disinflation. This sorry state will increase calls for the central bank to purchase more JGB's, the same policy that has failed to produce any constructive results since its inception.
    Sep 26 08:04 AM | 5 Likes Like |Link to Comment
  • Wall Street Breakfast: Siemens To Acquire Dresser-Rand For $7.6B [View article]
    At the G20 meeting the EU was under pressure to do more to stimulate growth with growing expectations of Draghi but his options are becoming increasingly limited. And his most recent effort to expand lending through targeted long term funding has been somewhat of a failure inasmuch as banks have signed up for only 83 billion euro when hopes were for 1 trillion euro. Many political leaders are failing in tackling needed structural reforms in product/labor markets and live under the chimera that QE is needed when rates are already low and spreads between Germany and the peripherals have tightened.
    Sep 22 07:47 AM | 2 Likes Like |Link to Comment
  • Weighing The Week Ahead: Should Stock Investors Fear Current 'Divergences'? [View article]
    From Dana Lyons:

    The first step was to run the test to independently verify the 47% figure. We did so and found around 45% of Nasdaq stocks were down 20% from their 52-week high — close enough. Suffice it to say that sounds like an alarmingly high number.

    That leads us to the second step: determining context. 47% sounds high but is it really? Well, we ran the test since the beginning of the year and as it turns out, the percentage has been above 40% for most of the time since March. So it may be high, but it isn’t an extremely recent development. If it is one of those divergences that we’ve observed so often lately, it is apparently another one that can persist for some time before causing real damage to the major averages.
    Sep 21 09:27 AM | 7 Likes Like |Link to Comment
  • Weighing The Week Ahead: Should Stock Investors Fear Current 'Divergences'? [View article]
    Jeff, I have been traveling and I think you missed an installment or two but it's great to be able to sit down on Sunday morning and read one of my favorite blogs. You were spot on about last week and I lean to the view there is increasing tension between the committee’s standing statement of keeping rates low for a considerable period versus the rate forecasts. And I believe the language of considerable time has been emasculated. With this, I think the markets are reading the Fed's statement differently and we are seeing markets move in different directions. In addition to macro global, I have been spending more time with technical's and will say the bearishness you note inside the NDX should raise eyebrows but it has been with is for awhile and is doing nothing to halt the advance of the S&P. Similarly divergences between RUT and SPX should be bearish but have not been over the past two years based upon examination of the data. And Urban Carmel of the Fat Pitch notes that a surge in RUT is a greater threat inasmuch as it constitutes beta chasing and is supported by the data. I am not dismissing deteriorating internals and different divergences only saying they are not new and thus far have not induced harm. Lastly, I'm inclined to be believe we will see some volatility in the coming days based upon options measures. Thanks again.
    Sep 21 09:05 AM | 5 Likes Like |Link to Comment
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