Wall Street Expects S&P To Peak At 3,056; Will Rotate Into Bonds When Yield Hits 3.7%

One day after Bank of America released its latest, and quite bearish Credit Investor Survey, on Tuesday the bank has published its latest, and far broader, Fund Managers Survey which polled a total of 225 panellists with $641bn AUM during the period of November 2-8. According to the survey administrator, BofA CIO Michael Hartnett, there were three key takeaways:

  • Investors forecast the S&P500 to peak at 3056 (give or take) and are waiting for the 10-Year yield to reach 3.7% before rotating from stocks into bonds
  • Cash levels fell in Nov… To BofA this suggests that positioning is not bearish enough for Big Low (which will likely take place in Q2 2019 at the earliest)
  • Perhaps most notable is that the allocation to tech plunged to the lowest since Feb’09 even though investors still see “Long FANG-BAT” as the most crowded trade; Meanwhile, investors are long US$ & not yet long global recession

Some more detailed observations together with charts:

On when the market finally tops, investors think the S&P 500 will peak at 3056 (a weighted average of the responses) suggesting 12% upside from today’s level, even though – like the market – this level appears to be rolling over …

…but as BofA notes, 1 in 3 FMS investors (30%) now think US stocks have already peaked, double last month’s reading (16%). This likely also means that there are quite a few who see the S&P rising as high as 3500 or more.

Next, when looking at the big risk cited by credit investors, namely rising rates, Wall Street investors said they don’t expect a rotation from equities to bonds until 3.7% on the 10-year Treasury (also the averaged weighted response); This is about 20bp higher than the response back in April 18.

Contrary to reports of asset liquidations, survey respondents said that their cash level actually fell to 4.7% from 5.1% (just above the avg of the past 10 years of 4.5%) and hovering just above neutral even as investors reportedly stay bearish. To BofA this means that the Cash Rule has been in “buy” territory for the past nine months. As a reminder, the FMS Cash Rule works as follows: when average cash balance rises above 4.5%, a contrarian buy signal is generated for equities. When the cash balance falls below 3.5%, a contrarian sell signal is generated.

The survey also reveals an interesting split: on one hand, the percentage of FMS investors saying they are net overweight tech has fallen to just 18%, the lowest since Feb’09…

… even though for the 10th consecutive month, “Long FAANG+BAT” (Facebook, Amazon, Apple, Netflix, Google + Baidu, Alibaba, Tencent) remains the answer to what investors believe is the most crowded trade (the August reading was most crowded trade outright since Long USD Dec ’15).

One reason for the revulsion away from tech may be the following: When asked “What do you think will be the best performing asset class in 2019?” the most popular response by far is “non-US equities” (45%), followed by the S&P in distant second at 17%, and commodities third with 15% of respondents.

There was less certainty on the other side: when asked “What do you think will be the worst performing asset class in 2019?” 25% said Corporate bonds, followed immediately by Government bonds with 24%. The S&P was third with 18% of the answers.

In this vein, 61% of respondents expect high-quality to outperform low-quality (up from 59% last month) – a “deep late cycle” prediction, while 46% expect large cap stocks to outperform small cap stocks (up from net 42 last month, and a new 2-year high).

And in another confirmation of a late cycle market, the percentage saying value will outperform growth next 12 months jumped 19% MoM to 39%, the highest since Feb’17

In another surprising twist, even though investors have benefited greatly from corporate shareholder payout generosity, a net 33% of them also think corporate payout ratios are too high, a record high, reflecting concern about US corporate debt, which is also at a record high @46% of GDP.

Taking a step back and looking at the global economy, FMS macro expectations are bearish with 44% of survey respondents expecting global growth to decelerate in the next 12 months, the worst outlook on the global economy since Nov’08.

At the same time, 54% of FMS investors think Chinese growth will slowdown in 2019, the most bearish outlook since Sept’16.

And while they may be bearish, they are not too bearish, as just 1 in 11 (11%) of FMS investors expect a global economic recession in 2019.

One possible reason: too many still believe that inflation and not deflation remains the major concern for the economy: indeed, the consensus view among investors is for higher inflation; net 70% expect core CPI to rise over the next 12 months, but conviction has slipped since the recent peak of 82% in Apr ‘1.

A note for the contrarians: investors are concerned that US stocks, and global healthcare equities are most vulnerable to a deeper bear market; and last domino to drop in ’19 likely US dollar (most overvalued since 2006); trading bulls should play year-end rally via China plays (Eurozone, industrials, materials). That’s because in November, investors bought the Oct correction & increased exposure to US & EM stocks, REITs, and healthcare…but as noted above, the allocation to global tech sector collapsed to lowest level since Feb’09… and despite investors predicting that value will outperform, ominously there have been no signs of investor rotation from tech to “value”, i.e. banks, small cap, industrials, EAF.

In other words, investors continue to say one thing, and do the opposite.

Commenting on the latest survey, BofA’s Michael Hartnett said that “we remain bearish, as investor positioning does not yet signal ‘The Big Low’ in asset markets.”

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Maine’s GOP Congressman Sues to Stop Ranked-Choice Voting

Rep. Bruce PoliquinMaine Republican Congressman Bruce Poliquin has filed a federal lawsuit in hopes of stopping the state’s implementation of a new voting method from wrecking his re-election chances.

In initial election returns, Poliquin is ahead of Democratic challenger Jared Golden, but just barely, 46 percent to 45 percent. The problem for Poliquin is that under Maine’s new ranked-choice voting system, he has to surpass 50 percent in order to win. There are two other independent candidates in the race covering the spread between the two major party candidates.

Previously, those laggards would matter only in the sense they could spoil one of the front-runners’ chances. But with ranked-choice, it’s a bit different. Rather than choosing one candidate, voters are invited to rank the candidates in order of preference. If no candidate gets 50 percent, there’s a retallying of the ballots where the candidate with the least number of votes is dropped. For those who voted for that candidate, their second choice (if they selected one) is tallied as their vote instead. And so it goes until one candidate gets a majority of the vote.

So even though Poliquin is leading, he could very well end up losing when the other two candidates are dropped out in following rounds of tallying. He and the Maine Republican Party have an interest in stopping ranked-choice voting in its tracks, even though voters approved the implementation of it via ballot initiatives (twice).

Today, Poliquin and a couple of Republican voters filed a suit claiming that this transition to ranked-choice voting violates the United States Constitution in an attempt to get a federal judge to stop the subsequent recounts.

The lawsuit (which can be read here) argues that implementing ranked-choice voting violates Article 1, Section 2 of the U.S. Constitution. That section sets up that members of the House of Representatives shall be elected by the people, though it does not specifically state how that election should be decided, whether through a majority or plurality.

The lawsuit takes note of a federal appeals court case from 1970, Phillips v. Rockefeller, involving a challenge to a U.S. Senate election in New York. In that case, a panel of judges ruled that when the authors of the Constitution wanted a majority vote to determine outcomes, they specifically stated so (as the Constitution does when referring to the electors choosing the president). If they do not, then historically only a plurality vote has been required to win a Congressional election.

But there’s a notable difference with this case and what is happening in Maine. In the Phillips case, the plaintiff was challenging the results of the election because the winner, James L. Buckley, did not receive a majority of the vote. The plaintiffs were attempting to use the court to force through a change in how elections are run. The judges resisted for the above reason.

In Maine, though, the voters themselves decided through the ballot initiative process to require a majority vote for federal elections, and it’s not really clear from that case that the judges are saying that a plurality must be the rule either. The conflict here appears to be whether the people of a state can decide for a higher threshold than plurality. In that, the U.S. Constitution is silent.

Maine’s own state constitution is clear, though, in using the word “plurality” to determine who wins state-level races, so thus far ranked-choice voting is not being used to determine the ultimate winner of the governor’s seat or state legislature seats, even though voters agreed to implement ranked-choice for those races as well. Right now, ranked-choice is being used only for federal races because the U.S. Constitution doesn’t have a demand for plurality. Maine’s top court has warned that lawmakers should change the state’s own constitution to implement ranked-choice vote for state-level elections. They have not yet done so.

The attorney for the Committee for Ranked Choice Voting is asking to join the suit to try to argue against Poliquin’s demand. John Brautigam said that ranked-choice voting implemented elsewhere have been upheld by state and federal courts and believes it will be upheld. In May, a federal judge declined a request from the state’s GOP to stop the use of ranked-choice voting for the primary elections in June.

The Press Herald in Maine notes that it’s not yet clear when the judge will take up this lawsuit. In the meantime, Maine’s secretary of state’s office is continuing with the vote tallying unless a judge orders them to stop.

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Crude Crashes As Saudi Abandons OPEC Production Curbs

For the first time since the Vienna OPEC deal in 2016, Saudi Arabia is no longer complying with the quota as Bloomberg calculates that in October, The Kingdom boosted crude production above its starting point for oil cuts.

Saudi output in October was 10.63m b/d, according to data published in OPEC’s monthly market report; compares with 10.502m b/d in September.

As a reminder, as part of OPEC+ supply cuts, Saudi Arabia agreed to curb production by 486k b/d below the starting point of 10.544m b/d, which was its October 2016 output.

WTI Crude is crashing over 5% on the news as supply glut fears are resurgent (amid global growth fears stoke demand anxiety)…

Saudi Arabia has fully complied with OPEC+ agreement in every month through May. Since then it has cut supply, but by less than it pledged to curb. October is 1st time it has increased output above the starting point.

WTI has now retraced 60% of the two-year uptrend…

WTI Crude is now down over 6% YTD to its lowest since Dec 2017.

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A New Baby

Last week, our family experienced the joy of welcoming a new baby girl into our home. Everyone’s doing great and her older brother and sister are already thrilled to have another little one join the team. The feeling of wonderment and overwhelming love that accompanies a new birth never ceases to amaze me, and I was once again awestruck by the strength and courage displayed by my wife throughout pregnancy, labor and delivery. Now the really hard work begins.

Three years ago we had zero kids, now we have three. All of them stay at home with us, so life feels like a little person amusement park 24/7. Our son became obsessed with dinosaurs a few months ago, so he’s constantly pretending to be different extinct prehistoric beasts, each with its own distinct roar and disposition. His younger sister is absolutely fearless, a trait that was readily apparent since her first crawls. Divert your attention for a moment and she’s climbed atop the highest possible thing within arms reach. A couple of days ago a storm rolled through town. Myself and the kids had a blast flopping around in the snow while my wife nursed the littlest one inside.

I’ve barely read any news since the birth. While it’s been nice to take a break from tweeting and writing, watching two toddlers is no vacation. Sitting at a desk all day is easy work compared to what my wife does. I probably won’t be publishing anything substantial until after Thanksgiving, as my current priority is to help out as much as possible until we figure out how to handle two toddlers and a newborn.

With love from the Krieger family.

continue reading

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California “Camp Fire” Deadliest, Most Destructive In State History As Death Toll Hits 42

Northern California’s Camp Fire burning near Chico is not only the state’s most destructive, it is also California’s deadliest in state history. A total of 42 people have died in the blaze – one of two major wildfires burning throughout California with a combined death toll of 44. 

The Camp Fire’s death toll has grown in staggering leaps. The first notice came on Thursday, when investigators found the remains of five people in Paradise who were apparently trapped in their cars by the blaze. Four more were found on Friday, and 20 more over the weekend. –NPR

The Camp Fire in Butte County about 80 miles north of Sacramento grew to 125,000 acres overnight, up from 117,000, and has destroyed over 6,500 structures. It is just 30% contained

Source: Sentinel-2 satellite

“This is an unprecedented event,” said Butte County Sheriff Kory Honea on Monday night. “If you’ve been up there, you also know the magnitude of the scene we’re dealing with. I want to recover as many remains as we possibly can, as soon as we can. Because I know the toll it takes on loved ones.” 

President Trump has approved an expedited disaster declaration request for the California fires, stating in a tweet that he wanted “to respond quickly in order to alleviate some of the incredible suffering going on,” adding “I am with you all the way. God Bless all of the victims and families affected.”

The Camp Fire started last Thursday morning, storming through Paradise CA and leaving utter devastation in its wake.  

“Last night firefighters continued to hold established containment lines,” CalFire said in a Tuesday update, adding that firefighters had “worked aggressively” to safeguard structures in harms way. That said, dry conditions and steep terrain are expected to continue to pose a challenge. 

More than 50,000 people have fled the Camp blaze, according to member station KQED. And even at a distance, the fire is posing health concerns: “Air quality throughout the Bay Area remains in the ‘unhealthy’ zone, according to federal measurements,” KQED reports, adding that the conditions should persist through Friday. –NPR

Meanwhile, the Woolsey Fire in the Southern California Malibu region has destroyed over 95,000 acres, destroyed 435 structures and claimed 2 lives. It is 35% contained. 

An air tanker drops water on a fire along the Ronald Reagan Freeway in Simi Valley, Calif.
Ringo H.W. Chiu/AP

“We’ve got 60 to 70 mph offshore Santa Ana winds blowing for the next several days and those are just deadly,” said CalFire Chief Ken Pimlott to NPR

Molten aluminum flowed from a car that burned in front of one of at least 20 homes destroyed just on Windermere Drive in the Point Dume area of Malibu, California, Saturday, Nov. 10, 2018.Reed Saxon / AP

The cause of the fires remain unknown, however two electric utility companies reported service issues just minutes before the two blazes began. 

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Why Stan Lee’s Flaws Were Part of His Virtues

Stan Lee, who died yesterday at age 95, is a topic that attracts obsessive nerds. Nerdery inspires a hunger to have a deeper, more complicated opinion than the standard one non-obsessives might have. In Lee’s case that normal opinion is probably best expressed as “Stan Lee was awesome, the prime driving force of the wonderful Marvel Comics universe, which has understandably brought joy to millions in comic books and now in our most popular motion pictures.”

When I was first began obsessively consuming Marvel Comics in 1975, Lee was already a half-decade past writing most of them; still, his spirit dominated them. Each comic the company issued featured a “Stan Lee Presents” logo on the splash page and his monthly “Stan’s Soapbox” columns. Stylish hardcover books, as well as monthly titles from Marvel, were reprinting his 1960s work that established the intricately interconnected Marvel superhero universe. That sense of intertwined continuity has spread, as his youthful devotees took over popular storytelling everywhere, through entire multiverses of adventure movies to most quality TV shows that strive to do more than tell disconnected weekly stories of someone solving a problem.

But smart comics cognoscenti grew to a second-level realization: that loving and crediting Lee uncritically was untrue to how Marvel Comics were actually created. To boot, venerating Lee without proper caveats was unfair to some truly creative artists. It was his artist partners Jack Kirby (the Fantastic Four and Thor most prominently and continuously) and Steve Ditko (Spider-Man, Dr. Strange) who most deserve credit for the wildest and most wonderful imaginings of Marvel, given how Lee as writer/editor (and company employee while his artists were freelancers) didn’t provide full scripts, at most talking through story ideas with artists then taking their spectacular drawn pages that laid out the action and writing dialogue on them.

What’s more, Lee’s lifelong role as an employee or at least paid-off emissary of Marvel made him regularly refuse to fully and specifically credit his artist partners as true co-creators of the characters. (Books will surely be written, as many magazine articles have, on the specifics of Lee’s relationship with the artists, the company, and the truth, but the preceding are the broad basics of the comics fan arguments.) Ownership of the characters, whomever truly created them, remained with the corporation and its owners, who are now Disney, never Lee or the artists. But to add injury to insult, as many Marvel fans saw it, Lee’s continuing role with Marvel and as producer on the films made him far more money from his role as writer/editor than Kirby or Ditko ever saw.

A third-level clever take on Lee and his achievements, and those of his artist partners, is that, well, isn’t it just embarrassing that so many adults in our culture have held on to affection for and obsession with these goofy preteen fantasies of impossible superbeings? Sure, learned critics, academics, and journalists have churned out decades of smartypants theses arguing Marvel Comics’ relevance to the fears of the atomic age or their supposed mythic or Shakespearean echoes, but isn’t that all just excuse-making for childhood toys we’ve been too indulgent to put away in the closet where they belong? (The continued affection of “serious” people for Marvel Comics has been expressed everywhere this week, though I confess to feeling at times that unlovely frisson of the nerd wanting to challenge interlopers with “Oh, you love Stan Lee, huh? Then please explain Mike Murdock to me, buddy.” But it is true even in the ’60s that many hundreds of thousands from ages six to at least 26 were reading his comics, and via reprints and the movies, now tens of millions have had a chance to become true fans.)

Reed Richards, universe-exploring leader of the Fantastic Four, is pictured in the panel to the right, as drawn by Kirby. In that panel his Lee-scripted soliloquy delivers a heavy dose of the fascination and grandeur of grappling with life itself that made Lee’s comics so influential on so many who read them. He also says a few things that inadvertently frame the real way to consider Lee’s career: “There will be others…those who come after me…and each of us, in his own way, does what he can for those who will follow.”

So sure, If you wanted to minimize Lee’s importance even in terms of the huge Marvel movies (those who love comics for their own sake often want to minimize them, and those contemptuous of the supposed idiocy of a culture that spends so much time and money making and watching superhero tales do so for their own reasons), you could rightly point out that beyond the sheer concepts of “Norse God superhero” or “thawed-out World War II super-soldier” or “iron-suited industrialist” or “Russian lady spy turned hero,” the characters in the Marvel films are more based on later Marvel writers or the film writers and actors themselves than specifically on how Lee wrote them; and that Lee worked, since he was a teen in the early ’40s, in a tradition and community of comic artists and writers from whom he learned and took much. It is true that Lee did not create de novo, and that the creations he had a hand in have had a rich, in some cases richer, life without him.

But the galaxy-brain level final conclusion to what to think about Stan Lee, after all the above has been justly processed, has to be: Stan Lee was awesome. His brilliant artists did not work in a creative or business vacuum. The particulars of his dialogue and characterization were absolutely key to Marvel’s coolness and success.

And no matter what the cultural adults in the room say, and without trying to staunchly defend it to such non-believers, this ostensible adult and so many, many others now pouring out love for Stan Lee prove it: Not every wonderful, affecting story has to have the depth of insight into the actualities of the human condition of a Henry James novel, or even the depth of character and cogency of concept of the best modern science fiction.

The concepts and characters and adventures of Lee and his partners at Marvel—in all their goofiness and absurdity—captured something compelling about heroism, and our sense of the core mysteries of human and cosmic existence, and besides any such hand-waving justificatory generalizations any of us might embarrassedly make, were just so damn cool, man.

Their sheer exuberant explosive existence justifies themselves, and kids and adults of all ages have been drawn into them, deep into them, for more than half a century, captivated by the concepts, the plots, the interconnections, even the specifics of his phrasing and language choice. (Face it, true believers, many Marvelites got a quarter or more of their “interesting” vocabulary straight from Lee, if truth be our destiny.)

Maybe we’re all congenital idiots here on the bus of Stan Lee fandom, but in a sense the love and fascination inspired by his work at Marvel in the ’60s are their own proof of greatness. We’ll be awestruck by the Negative Zone and gangs of mutants fighting for supremacy and evil scientists with mechanical arms and giant Nazi robots and Asgard and the Dark Dimension and all the other concepts, acted out by enduringly charming if absurd and faux-deep characters that Lee brought or helped bring us, as long as America endures.

When it comes to his relationship as a company man to the artists, above and beyond the question of ownership (which was outside his power to change), one thing comes to mind to this obsessive reader of his work and of work about him. Comics historians present a picture whose details are too complicated and huge to reduce to a singular conclusion of what kind of man or writer or boss he was.

But from the decades of detailed interviews in the amazing comics fanzine Alter Ego—run, not coincidentally, by Lee’s writing protege at Marvel, Roy Thomas—one thing that strikes me the most is that Lee was, even as the guy who hired them and assigned work to them and created with them, a dedicated and genuine student and fan of comics art. He clearly loved and valued those artists. Lee and the artists themselves were both faced with a business world that shaped the choices creators had to make in the years before the underground and indie comics revolutions made self-publishing an imaginable choice. But artists who wanted a steady paycheck and actual access to mass markets needed a company man editor to hire them to work. Their admirers may dream of a world in which that was not true, but the comics marketplace was a world that neither they nor Lee made.

And hire them is what Lee did. Lee did not treat Kirby and Ditko and his other amazing artists as well as they’d like, and the company certainly didn’t. But in a popular culture that worked via mass production and distribution, Lee should be remembered as, whatever else he was, the guy who valued these artists and gave them a chance to work, often maintaining relationships over years or decades from the ’40s on that a less caring—or less discerning of their greatness—boss would have let go. No one loves a boss in our culture, but creatives who wish to work for a steady wage need them.

Yes, Lee was a shameless self-promoter, and the public character of “Stan Lee” was one of his most enduring creations. But that is part of his magic, not something that diminishes it. Four years ago, at age 91, Lee was still attending and participating in pitch meetings at Pow! Entertainment, the company he was working with at the time. A writing partner of mine, Daniel Browning Smith, had hosted a Stan-branded TV show, Stan Lee’s Superhumans, so I ended up with Daniel getting the honor of helping pitch some feature film and TV show ideas for Lee and his company to this man who was largely responsible for forging my own sense of story and character when I was a pre-teen.

This led to the actually strangely deep pleasure of having that man, at 91, taking time to be in a meeting he could easily have left to his associates, explain to me how a feature treatment I gave him a two-minute verbal pitch for failed to properly develop a rising sense of danger and conflict through act two.

Well, I thought, had I taken more than two minutes to explain every twist and turn maybe he’d see it wasn’t that much of a bust in rising sense of danger terms, but honestly, he was likely mostly right, if not about that flaw then about others. Having someone you admire as much as him at the other side of a table doesn’t bring out the most skilled arguer anyway. Nothing came of the meeting, and it was reasonably obvious by the end of it that nothing likely would, so I let loose the annoying fanboy and as we were shaking hands goodbye told Lee that his work forged in my youth what I saw as the key elements of myself as a person and writer.

“I get blamed for everything,” he shot back, nearly before my mouth closed.

Obviously the sort of gush he fended off a dozen times a day, and I learned later his response was, of course, one of his rehearsed lines; all the better! Lee, at his age and already giving professionally and personally of his time chose in an instant to give a younger writer and fan a further gracious gift. He responded to this hoary, to him, moment with not silence or a pro forma bored “thanks” but a memorable shot of the “real Stan” or at least the real public Stan: light and jokey and quick, that writerly voice that, combined with his pseudo-mythical grandeur, made Marvel so appealing. One quick quip, one more wonderful gift of so many from Stan Lee to me.

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Major Markets Are All Flashing Warning Signs

Authored by Lance Roberts via RealInvestmentAdvice.com,

In this past weekend’s newsletter, I touched on the outcome of the mid-term elections and why it would likely not be as optimistic as the mainstream media was portraying it to be. To wit:

“It is likely little will get done as the desire to engage in conflict and positioning between parties will obliterate any chance for potential bipartisan agenda items such as infrastructure spending.

So, really, despite all of the excitement over the outcome of the mid-terms, it will likely mean little going forward. The bigger issue to focus on will be the ongoing impact of rising interest rates on major drivers of debt-driven consumption such as housing and auto sales. Combine that with a late stage economic cycle colliding with a Central Bank bent on removing accommodation and you have a potentially toxic brew for a much weaker outcome than currently expected.”

I also wrote:

“With portfolios reduced to 50% equity, we have a bit of breathing room currently to watch for what the market does next. It is EXTREMELY important the market rally next week above Wednesday’s highs or we will likely see another decline to potentially test the recent lows.”

Unfortunately, on Monday, nothing good happened. While the week is not over yet, the failure of the S&P 500 at the 50-dma now turns that previous support to important resistance. Furthermore, the failure of the market to hold the 200-dma also increases the downside risk of the market currently.

There is an important point here to be made about “bull markets” and “bear markets.”

While there is no “official” definition of what constitutes a “bull” or “bear” market, the generally accepted definition is a decline of 20% in the market.

However, since I really don’t want to subject my clients to a loss of 20% in their portfolios, I would suggest a different definition based on the “trend” of the market as a whole. As shown in the chart below:

  • If prices are generally “trending higher” then such is considered a “bull market.”

  • “bear market” is when the “trend” changes from positive to negative.

The vertical red and green lines denote the confirmation of the change in trend when all three indicators simultaneously align.

  • The price of the market moves below the long-term moving average. 

  • The long-term overbought condition is reversed (top indicator) 

  • The long-term MACD signal changes from “buy” to “sell” X

Importantly, note that just a violation of the long-term moving average is not confirmation of a change to the ongoing bull trend. Over the last decade, there were several violations of the long-term moving average which were quickly reversed by Central Bank interventions (QE2 and Operation Twist).

In late 2015, all indications of the start of a “bear market” coincided as the Federal Reserve had launched into their rate hiking campaign. However, that bear market was cut short through the injections of liquidity from the ECB’s own QE program.

Currently, with Central Banks globally beginning to reduce or extract liquidity from the financial markets, and the Federal Reserve committed to hiking rates, there seems to be no ready “backstop” for the markets currently.

However, since this is a monthly chart, we will have to wait until December 1st to update these indicators. However, if the market doesn’t begin to exhibit a more positive tone by then, all three indicators of a “bear market” will align for only the 4th time in 25-years. 

But it isn’t just the S&P 500 exhibiting these characteristics.

The S&P 400 has not only failed at a retest of the longer-term moving average but mid-caps are close to registering a “change in the trend”  as the 50-dma crosses below the 200-dma.

(Note: we have previously closed all mid-cap positions in our portfolios)

While the S&P 600 is not a close as the S&P 400 to registering a “change in trend,” it likely won’t be long before it does. The failure of small-caps at the 200-dma is confirming additional downward pressure on those companies as concerns over ongoing “tariffs” and “trade wars” are most impactful to small and mid-sized company profitability.

(Note: we have previously closed all small-cap positions in our portfolios)

The Russell 2000 is also confirming the same. The index is extremely close to registering a “change in trend” as the 50-dma approaches a cross of the 200-dma. Also, with the index failing at the 200-dma and turning lower, just as with small and mid-cap indices above, a break of recent lows will confirm a “bear market” has started in these markets.

But what is happening domestically should not be a surprise. The rest of the world markets have already confirmed bear market trends and continue to trade below their long-term moving averages. (The very definition of a bear market.) While it has been believed the U.S. can “decouple” from the rest of the world, such is not likely the case. The pressure on global markets is a reflection of a slowing global economy which will ultimately find its way back to the U.S.

(Note: we closed all international and emerging market positions in our portfolios at the beginning of this year.)

Just as a side note, China has been in a massive bear market trend since 2015 and is down nearly 50% from its previous highs.

While much of the mainstream media continues to suggest the “bull market” is alive and well, there are a tremendous number of warning signs which are suggesting that something has indeed “changed.” 

“The tailwinds that existed for the market over the last couple of years from tax cuts, to natural disasters, to support from Central Banks have now all run their course.

The backdrop of the market currently is vastly different than it was during the “taper tantrum” in 2015-2016, or during the corrections following the end of QE1 and QE2.  In those previous cases, the Federal Reserve was directly injecting liquidity and managing expectations of long-term accommodative support. Valuations had been through a fairly significant reversion, and expectations had been extinguished.

None of that support exists currently.”

The ongoing deterioration in the markets continues to confirm, as I wrote back in April, the bull market that started in 2009 has ended. However, we will likely not know for certain until we get into 2019, but therein lies the biggest problem. Waiting for verification requires a greater destruction of capital than we are willing to endure.

(Note: Just because the bull market has ended doesn’t mean it will never resume again. It is simply a transition to remove excesses from the market. Bear markets are a good thing as it creates long-term opportunities.)

We have already taken steps to reduce equity risk and will do more on rallies that fail to re-establish the previous bullish trends in the market. If I am right, the more conservative stance will protect capital in the short-term. The reduced volatility allows for a logical approach to further adjustments as the correction becomes more apparent. (The goal is not to be forced into a “panic selling” situation.)

If I am wrong, and the bull market resumes, we simply remove hedges and reallocate equity exposure.

“There is little risk, in managing risk.” 

If you have taken NO actions in your portfolio as of yet, use rallies which fail at resistance to “do something.” I have reprinted our portfolio management rules as a guide.

RIA Portfolio Management Rules

  1. Cut losers short(Reduce the risk of fundamentally poor companies.)

  2. Set goals and be actionable. (Without specific goals, trades become arbitrary and increase overall risk.)

  3. Emotionally driven decisions void the investment process.  (Buy high/sell low)

  4. Follow the trend. (80% of portfolio performance is determined by the long-term, monthly, trend. While a “rising tide lifts all boats,” the opposite is also true.)

  5. Never let a “trading opportunity” turn into a long-term investment. (Refer to rule #1. All initial purchases are “trades,” until your investment thesis is proved correct.)

  6. An investment discipline does not work if it is not followed.

  7. “Losing money” is part of the investment process. (If you are not prepared to take losses when they occur, you should not be investing.)

  8. The odds of success improve greatly when the fundamental analysis is confirmed by the technical price action. (This applies to both bull and bear markets)

  9. Never, under any circumstances, add to a losing position. (As Paul Tudor Jones once quipped: “Only losers add to losers.”)

  10. Markets are either “bullish” or “bearish.” During a “bull market” be only long or neutral. During a “bear market”be only neutral or short. (Bull and Bear markets are determined by their long-term trend as shown in the chart below.)

  11. When markets are trading at, or near, extremes do the opposite of the “herd.”

  12. Do more of what works and less of what doesn’t. (Traditional rebalancing takes money from winners and adds it to losers. Rebalance by reducing losers and adding to winners.)

  13. “Buy” and “Sell” signals are only useful if they are implemented. (Managing a portfolio without a “buy/sell” discipline is designed to fail.)

  14. Strive to be a .700 “at bat” player. (No strategy works 100% of the time. However, being consistent, controlling errors, and capitalizing on opportunity is what wins games.)

  15. Manage risk and volatility. (Controlling the variables that lead to investment mistakes is what generates returns as a byproduct.)

It should be remembered that all good things do come to an end. Sometimes, those endings can be very disastrous to long-term investing objectives. This is why focusing on “risk controls” in the short-term, and avoiding subsequent major draw-downs, the long-term returns tend to take care of themselves.

Everyone approaches money management differently.

This is just our approach and we are simply sharing it with you.

We hope you find something useful in it.

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Bezos Backlash Begins: Socialist Democrats Decry Amazon HQ2 “Burden” On NYC

Amazon has only just officially confirmed its plans to split its second headquarters between Queens (specifically the Long Island City neighborhood) and Crystal City, Virginia (a suburb situated just three miles from Washington DC). But already, one newly elected millennial Congresswoman is leading the local backlash against the e-commerce giant, which secured a staggering $1.525 billion in performance based tax incentives from the Democrat-ruled New York State.

Alexandria Ocasio-Cortez, the youngest woman ever elected to Congress, who won her seat following an upset primary victory in the spring over former House leadership member Joe Crowley, is taking a break from her desperate quest to find an affordable Washington DC apartment to stoke public anger against Amazon on behalf of the voters in her district, which includes parts of north-central Queens that are adjacent to LIC.

In a series of tweets published Wednesday, Cortez claimed that residents in her district are “outraged” by Amazon’s decision to move to NYC.

The notion that Amazon will receive hundreds of millions of dollars in tax breaks while NYC’s public infrastructure is literally crumbling before commuters’ eyes is an outrage, Ocasio said, adding that “our communities need MORE investment, not less.”

Amazon has promised to hire 25,000 people to fill well-paid positions with salaries north of $150,000. But has the company promised to hire within the community? And has it guaranteed that workers can collectively bargain? The answers to both of these rhetorical questions is, of course, no.

Displacing working-class people, a phenomenon that has already afflicted much of NYC’s outer boroughs and will almost certainly intensify with Amazon’s arrival, isn’t community development, Ocasio Cortez complained. And investing in luxury condos doesn’t equate with community development.

Corporations that don’t focus on good health care and providing affordable housing “should be met with skepticism,” Ocasio Cortez said.

Before signing off, Ocasio Cortez specified that she isn’t “picking a fight” with Amazon, but raising important questions about corporations’ responsibility to “pay their fair share.”

Shortly after her tweetstorm, several other NYC politicians jumped on the bandwagon.

To compensate New York City for the generous (or, as Ocasio would argue, overly generous) property tax incentives, Amazon has agreed to “payment in lieu of tax” plan through which it will finance “community infrastructure improvements”, including a new public school (because we all know how much Jeff Bezos cares about public school funding), workspace for artists and a tech incubator.


The company also promised to “invest in infrastructure improvements and green spaces”, though, unless Amazon is planning to chip in for a massive upgrade of the subway, we imagine that, whatever it proposes, New Yorkers will remain deeply unimpressed.

We imagine Ocasio-Cortez’s concerns are only the beginning. Expect waves of protests and demonstrations as NYC’s vibrant community of mommy-and-daddy-supported SJWs converge on LIC to protest the company responsible for supplying most of their possessions.

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Black Security Guard Uses Gun to Prevent Violence, Cops Show Up and Kill Him

RobersonJemel Roberson was working as a security guard at Manny’s Blue Room Lounge in Robbins, Chicago, last weekend when a fight broke out. He acted heroically—using his gun to protect innocent people. Then the police killed him.

The incident transpired around 4:00 a.m., after several drunken customers were ejected from the bar. Witnesses told WGN9 that one of these people came back with a gun and started shooting. Roberson, a 26-year-old black man, was armed, and returned fire. He was able to detain the shooter by pinning him to the ground and placing his knee on the suspect’s back. But when the police arrived, they thought Roberson was the assailant, even though he was wearing a vest that said “security.”

“Everybody was screaming out, ‘Security!’ He was a security guard,” Adam Harris, a witness, told reporters. “And they still did their job, and saw a black man with a gun.”

The police shot and killed Roberson. He was the only casualty; the shooter and three other people were injured.

Midlothian Police released a statement describing the incident as follows: “A Midlothian officer encountered a subject with a gun and was involved in an officer-involved shooting. The subject the officer shot was later pronounced deceased at an area hospital.” They plan to investigate.

Roberson was the father of a nine-month-old baby. His family is pursuing a lawsuit, and has created a GoFundMe page to help with burial expenses.

This is an example of a good guy with a gun stopping a bad guy with a gun, only to be murdered by another bad guy with a gun: the state, in this case. And while we don’t yet know just how irresponsible the cops’ behavior was here, we know it resulted in an innocent man’s death—and that multiple people were warning police not to shoot.

An innocent person’s death is always tragic, but those who support the Second Amendment should be especially perturbed that responsible gun use got a man killed by cops.

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One Third Of Central Americans Want To Live In A Different Country

Authored by Julie Ray and Neli Esipova via Gallup,

The several thousand Central American asylum seekers and migrants who are slowly making their way toward the U.S. border may be unusual because of the size of their group, but their desire to come to the U.S. is not. They actually represent a relatively small fragment of a much larger group of people in their own region — and around the world — who say they would like to move to the U.S. if they could.

In Gallup’s most recent global estimate, between 2015 and 2017, 15% of the world’s adults – more than 750 million people – said they would like to move to another country permanently if they could. In Central America, this percentage is one in three (33%), or about 10 million adults.

Three percent of the world’s adults — or nearly 160 million people — say they would like to move to the U.S. This includes 16% of adults from Honduras, Nicaragua, Guatemala, El Salvador, Panama and Costa Rica, which translates into nearly 5 million people.

But unlike the caravan of Central American migrants who are currently on the move, most people who desire to migrate will never try to make their way to the U.S. Desire remains only that. Gallup typically finds that the percentage of those who have plans to move is substantially lower than the percentage who would like to move, and even fewer are actively making preparations to do so.

Central America is no different in this regard. For example, in Honduras, whose residents make up a large percentage of the migrant caravan, about half of adults (47%) say they would like to move to another country permanently if they could, but about 9% are planning to move in the next year — and 2% are actively preparing to do so.


The caravan of asylum seekers and migrants is currently weighing whether it will remain in Mexico or push on to the U.S. Those who decide to push on speaks to the risks migrants are willing to take – and also the strong draw that the U.S. continues to be for millions.

For the past decade, Gallup’s global studies have shown that the U.S., more so than any other country, has been the top desired destination for people who say they would like to move. Central Americans are no exception. People in this region who would like to move – if they could – say they would like to move to the U.S. more than any other place in the world.

However, this desire to move to the U.S. started to show signs of waning in Central America in 2017, and it seems to have persisted in a number of countries so far in 2018. This could possibly reflect changes in the climate toward migrants in the U.S. under the Trump administration — but it is still too early to tell, and Gallup will continue to monitor it.

For complete methodology and specific survey dates, please review Gallup’s Country Data Set details.

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