4 Things To Ponder This Weekend

Submitted by Lance Roberts of STA Wealth Management,

With the debt ceiling debate/government shutdown now behind us, at least until the end of the year, we can now return to normal programming.  Next week will be a rash of economic data that was pent up by the government shutdown from employment to inflation data.  However, in the meantime, here are four things to ponder over this weekend.

1) The "Taper" Is Dead Until Next Year

I discussed in mid-September the real reason that the Federal Reserve did not "taper" their current Quantitative Easing program at their FOMC policy meeting despite wide expectations to the contrary.  I stated:

"The problem for the Federal Reserve currently is that they are once again facing an issue that nearly cratered the markets, and the economy, in 2011.  As we quickly approach the limit of the government's borrowing capability the threat of a government shut down and 'debt ceiling' debate once again looms.  Bernanke remains fearful of such a repeat event given an already weak economy coupled with rising interest rates.  Any shutdown of the government, fear of 'default,' or other restrictive fiscal policies, could collapse what incremental recovery there has been to date."

With the debt ceiling debate only post-poned until early 2014 this puts the Federal Reserve in a "box" of being unable to reduce the monetary support for the markets at the current time due to the threat of potential disruptions from the Government.  Richard Fisher from the Federal Reserve affirmed this idea via Bloomberg last Thursday:

  • FISHER: FISCAL SHENANIGANS HAVE 'SWAMPED' QE TAPER PROSPECTS
  • FISHER: HARD TO NOW ARGUE TO CHANGE COURSE OF MONETARY POLICY
  • FISHER HAS FAVORED TAPERING FED MONTHLY BOND PURCHASES
  • U.S. FED'S FISHER REPEATS BEST TO 'STAY THE COURSE' ON BOND BUYING AT OCTOBER FOMC MEETING

Of course, more QE means higher stock prices.  I discussed last week:

The Federal Reserve's ongoing QE program has continued to increase excess liquidity in the financial markets.  That liquidity provides a significant catalyst for an upward push should a resolution clear the way for the financial markets in the days ahead.  If a deal is struck; it would not be surprising to see the financial markets break out to new highs and approach 1800.

 

The 1800 level on the S&P 500 is something that I proposed back in August when I wrote "Could Stocks Be Ready To Melt Up?"

Fed-Balance-Sheet-VS-SP500-101613

Joe Calhoun of Alambra Partners concluded:

"The stock market loved the deal although it is hard to see why. The only thing I can come up with is that three more months of budget wrangling means QE goes on and in the math of Wall Street that means higher stock prices. QE and more budget negotiations won't produce more economic growth or better earnings but for some reason the stock jocks have decided that QE will keep stocks going up for as long as it persists. So far they've been right but I do wonder at what point the actual fundamentals will have an impact. And on that front, I don't see much good coming down the pike"

2) Sign Of A Bubble – "Athlete IPO's"

In 1999, it was "anything" that had a ".com" attached to its name.  In 2007, it was all about real estate and sub-prime debt.  Each of these instances of speculative greed was an early sign of a market peak.  Last week a company has figured out how to capitalize on selling shares of popular athletes to individuals.

"Thanks to Wall Street, fans can buy a stake in their favorite player.

 

On Thursday, a start-up company announced a new trading exchange for investors to buy and sell interests in professional athletes. Backed by executives from Silicon Valley, Wall Street and the sports world, the company plans to create stocks tied to an athlete's financial performance.

 

The company, Fantex Holdings, has grand ambitions beyond a Foster I.P.O. — it hopes to sign up more football players and other athletes, as well as celebrities like pop singers and Hollywood actors.  But if such an investment sounds speculative, that is because it is. In a filing for the Foster deal with securities regulators, Fantex laid out 37 pages of risk factors, including a possible career-ending injury or a performance slump.

 

'You are potentially one hit away from losing your money," said Bradley Shear, a sports management professor at George Washington University. "On any given Sunday, anything can happen to any player.' 

 

Risks aside, the offering is intended to capitalize on the mammoth popularity of theNational Football League and fantasy football, where fans draft players and score points for touchdowns, yardage and other notable plays during the season.

 

If thousands of fans are willing to pay as much as $250 for an Arian Foster jersey, the thinking goes, why wouldn't they pay up for a few shares of Arian Foster stock?"

Ideas such as these usually only gain traction when speculative greed is running near extremes.  Remember the "bit-coin" frenzy?

Click Here To Read The Entire Story

3) Why We Sell Winners And Hold Losers

This was a really good article on why, as investors, we always tend to do the opposite of what we should do as the emotions of "fear" and "greed" overtake logical decision making processes.

Consider these two problems

Problem 1: Which do you chose?  Get $900 for sure OR 90% chance to get $1,000

Problem 2: Which do you chose?  Lose $900 for sure OR 90% chance to lose $1,000

Think for a minute before reading further. For problem 1 most of us will chose the option of getting $900 for sure. We avoid risk when a sure gain is at sight. For problem 2 most of us will chose the option of 90% chance to lose $1,000. When a loss is looming around we chose to gamble and seek risk.

You were probably risk averse in problem 1, as it is the great majority of people. The subjective value of a gain $900 is certainly more than 90% of the value of a gain of $1,000. Now examine your preference in problem 2. If you are like most other people, you chose the gamble in this question. The explanation for this risk seeking choice is the mirror image of the explanation of risk aversion in problem 1: the (negative) value of losing $900 is much more than 90% of the (negative) value of losing $1,000. The sure loss is very aversive, and this drives you to take the risk.

The image given below shows the psychological value we associate with gains and losses.

prospecttheory

Read The Entire Piece Here

4) A Dozen Things I've Learned From Benjamin Graham About Investing

25iq posted a great list of investing wisdoms from Benjamin Graham on value investing.  With the markets currently being lofted into the atmostphere from excess liquidity, and few headwinds at the moment, it is a good time to remember what is important about investing for the "long term."

  • "The last time I made any market predictions was in the year 1914, when my firm judged me qualified to write their daily market letter based on the fact that I had one month's experience.  Since then I have given up making predictions."
  • "Abnormally good or abnormally bad conditions do not last forever."
  • "The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future."
  • "The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices."
  • "The investor's chief problem – and even his worst enemy – is likely to be himself."

Read The Entire Post Here

As we proceed through the rest of this year it will become an increasingly interesting debate between the economic and fundamental data versus ongoing asset speculation driven by excess liquidity.

 

 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/rQu3lfzDhrc/story01.htm Tyler Durden

Goldman: Entire S&P Move Higher Is Due To Multiple Expansion; Shiller P/E Says 30% Overvalued So… Buy

While it has been a stretch to call Bernanke’s post-2009 experiment in “wealth-effect” central planning (where in 2013 the Russell 2000 has outperformed the composite hedge fund by a factor of over 500%!) a “market”, here are some of the latest market thoughts by Goldman’s David Kostin.

US stocks surged to an all-time high of 1745 following the debt accord. The S&P 500 has returned 22% YTD driven almost entirely by P/E multiple expansion rather than higher earnings.

In other words, there has been zero actual bottom line improvement in 2013. Zilch. Nada. All this despite so many loud promises by every pundit in late 2012 that 2013 will be the year of the turn, just wait, you’ll see. It also means there has been zero “fundamental” component to the upside. All of it is multiple expansion. What’s another name for that? Why, “the Fed.”

Bearishly inclined investors will point to the cyclically-adjusted P/E ratio popularized by newly-crowned Nobel laureate Robert Shiller that suggests the S&P 500 is roughly 30% overvalued based on 10-year trailing average reported EPS.

“30% overvalued” by a person who just won the Nobel prize for saying the market is irrational and creates bubbles? You don’t say. Why is a perfect segue into the final Goldman notice:

We forecast the index will climb to 1750 by year-end 2013, a slim advance less than 1% above today’s level. Our year-end 2014 price target remains 1900 or 9% above the current level. S&P 500 trades at 2.6x price/book value. From a valuation perspective, the index level is consistent with the market’s current return on equity (ROE) of 15.5%, and in-line with the 35-year average P/B.

To summarize Goldman:

  • All upside is multiple expansion-driven, i.e. relentless Fed pumping of risks as the final bubble grows to unprecedented proportions,
  • A market which even tenured economists say is a disaster waiting to happen.
  • But hey, the music is still playing so everyone must dance all the way until Goldman’s 2100 target… in 2015.

All of this has come and gone before, but since this time will be different, one can just ignore the recurring past.

And, finally, some charts:


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/iGCUwpbBu0Y/story01.htm Tyler Durden

Goldman: Entire S&P Move Higher Is Due To Multiple Expansion; Shiller P/E Says 30% Overvalued So… Buy

While it has been a stretch to call Bernanke’s post-2009 experiment in “wealth-effect” central planning (where in 2013 the Russell 2000 has outperformed the composite hedge fund by a factor of over 500%!) a “market”, here are some of the latest market thoughts by Goldman’s David Kostin.

US stocks surged to an all-time high of 1745 following the debt accord. The S&P 500 has returned 22% YTD driven almost entirely by P/E multiple expansion rather than higher earnings.

In other words, there has been zero actual bottom line improvement in 2013. Zilch. Nada. All this despite so many loud promises by every pundit in late 2012 that 2013 will be the year of the turn, just wait, you’ll see. It also means there has been zero “fundamental” component to the upside. All of it is multiple expansion. What’s another name for that? Why, “the Fed.”

Bearishly inclined investors will point to the cyclically-adjusted P/E ratio popularized by newly-crowned Nobel laureate Robert Shiller that suggests the S&P 500 is roughly 30% overvalued based on 10-year trailing average reported EPS.

“30% overvalued” by a person who just won the Nobel prize for saying the market is irrational and creates bubbles? You don’t say. Why is a perfect segue into the final Goldman notice:

We forecast the index will climb to 1750 by year-end 2013, a slim advance less than 1% above today’s level. Our year-end 2014 price target remains 1900 or 9% above the current level. S&P 500 trades at 2.6x price/book value. From a valuation perspective, the index level is consistent with the market’s current return on equity (ROE) of 15.5%, and in-line with the 35-year average P/B.

To summarize Goldman:

  • All upside is multiple expansion-driven, i.e. relentless Fed pumping of risks as the final bubble grows to unprecedented proportions,
  • A market which even tenured economists say is a disaster waiting to happen.
  • But hey, the music is still playing so everyone must dance all the way until Goldman’s 2100 target… in 2015.

All of this has come and gone before, but since this time will be different, one can just ignore the recurring past.

And, finally, some charts:


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/iGCUwpbBu0Y/story01.htm Tyler Durden

The Poverty Of The American Political Theater Of The Absurd

Submited by Charles Hugh Smith from Of Two Minds

The Poverty Of Our Political Theater Of The Absurd  

The public sphere has been effectively stripped of everything but corny, irritatingly hammy political theater.

All we have left in the U.S. is a deeply impoverishing Political Theater of the Absurd. Policy, theory and governance have all been reduced to competing stage performances in the Theater of the Absurd. The actors are transparently given to farcical overacting in exaggerated dramas drained of meaning; they proceed through the cliched motions as if the audience hadn’t seen the same charades overplayed dozens of times before.

“Government shutdown” and “debt ceiling” may have engaged audiences starved for entertainment in a bygone age, but now they exemplify a theater that is so impoverished it can only re-stage tired formulaic dramas with a savage appetite for incompetence and buffoonery.

The poverty of this substitution of theater for actual ideas is best displayed by ObamaCare. The entire complex edifice of ObamaCare is not an expression of policy–it is simply the perfection of state complicity with a private cartel that increases its share of the national income regardless of which set of bad actors are on stage.

As for the alternative “policy,” it is nothing but a reversion to the pre-ObamaCare cartel-state arrangement that artlessly combines gross injustice, insensitivity to cost and insane incentives for fraud, skimming, defensive medicine and the pursuit of national chronic ill health as the most profitable state of existence.

That these two variations on state-cartel predation pass for “policy” is a clear indication of the absolute impoverishment of American political/social/economic ideas. We are adrift in a political order that glorifies and rewards overacted farce and punishes policy grounded in actual ideas rather than the theatrical trends of the day.

The public sphere has been effectively stripped of everything but corny, irritatingly hammy political theater. The players, bereft of talent and inspiration, chosen for their blind obedience to those benefiting from the eradication of ideas and the replaying of tiresome charades, are blind to the poverty of their performance and political theatrics.

Will the audience ever tire of this cheesy Theater of the Absurd? It seems the appetite of the American public for this sort of play-acting entertainment is essentially bottomless. As a result, so too is our poverty.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/hWfziOUP5z4/story01.htm Tyler Durden

Dollar Breaks Down

The re-opening of the US government after a 16-day shutdown sparked a sell-off in the US dollar that has deteriorated the near-term technical outlook.  The combination of setting the stage for a repeat of the brinkmanship in early 2014 and the recognition that the Fed’s long-term asset purchases are unlikely to be slowed this year, provides the fundamental backdrop.  

 

The prospect of unabated asset purchases by the Federal Reserve favor risk assets.  It will likely reinforce the flow into Spanish and Italian assets, and European distressed asset more broadly, including Greek bonds and stocks.   The recovery in emerging markets can continue, even if more selectively.  Here, South Korea, Taiwan and India have stood out in recent weeks. 

 

Another key characteristic of the price action is the continued decline in implied volatility.  The 3-month implied euro volatility has fallen to new six-year lows even as the euro appeared to break out of its month long consolidation range.  Implied yen volatility has fallen below 10% for the first time since January.  It peaked near 16.4% in June.  

 

The implied volatility of the other major currencies is also trending lower.  The implied volatility of sterling is approaching 5-month lows it falls through 7%.   Near 8%, three-month implied Aussie volatility is at the lowest level since mid-May and the 5.5% implied volatility of the Canadian dollar has not been seen since mid-year.  To the extent that risk is defined as volatility, the lower implied currency volatility is conducive to greater risk taking and a reduced need (and cost) to hedge.    

 

The euro is approached the year’s high, set in early February near $1.3711, though stopped just shy of it.  Assuming this is breached next week, the next target is near $1.40.  The main caveat from our technical analysis is that the euro closed above the top of its Bollinger Band (two standard deviations above the 20-day moving average) two consecutive sessions at the end of last week.  

 

Even though the returns in the foreign exchange market are not normally distributed,  arguably undermining the value of such concepts as standard deviations in the first, it is still a rare occurrence. It did take place this year in June and September and although neither time marked a significant high, there was at least a cent pullback.  This would seem to argue against chasing the euro at the start of the week and look for a pullback into the $1.3590-$1.3615 area as a lower risk buying opportunity.  

 

Sterling does not appear as over-extended as the euro, but its gains do not appear to have been confirmed by the Relative Strength Index.  The high set at the start of the month near $1.6260 is the next immediate target, and over the slightly longer term, potential extends toward $1.6400.  We peg initial support near $1.6100 and $1.6060.  

 

The dollar is making a third lower high against the yen since peaking in late-May near JPY103.75.  The dollar briefly poked through JPY99.00 on October 17, then it reversed lower and closed below the previous day’s low.  Follow through selling was seen the next day and the greenback finished the week at six-day lows.  The market appears to be set to re-test the 200-day moving average that had been successfully tested on the October 7-9.  It is found near JPY97.15.  Below there, the JPY96.50-70 band is reasonable near-term objective.   Lending credence to this negative dollar-yen view, the US interest rate premium over Japan has slipped below 200 bp to its lowest level in nearly three weeks.  

 

The price action at the end of last week also negated the bottoming pattern that the dollar had appeared to be carving out.  The low for the year was set on October 3 near CHF0.8970 and although the dollar held just above there before the weekend, near-term potential extends toward CHF0.8880-CHF0.8930.  That said, the Swiss franc many under-perform in the period ahead as some will prefer it as the short-leg of carry positions, especially against the Australian and New Zealand dollars. 

 

The US dollar posted an outside up-day against the Canadian dollar on Tuesday, only to reverse lower Wednesday and experience follow through selling into the weekend.  Still, the Canadian dollar was the worst performing of the major currencies last week, gaining only 0.6% against the greenback.  A break of the CAD1.0270 area could signal a move toward CAD1.02.  

 

However, the Canadian dollar still looks poised to lag behind the other dollar-bloc currencies.   The other dollar-bloc currencies are in strong uptrends against the Canadian dollar and these moves still appear to have room to run.  The Australian dollar is testing the CAD0.9945 area and, a convincing break, could signal a move toward CAD1.0125.  For its part, the New Zealand dollar is set to test the year’s high near CAD0.8780, which is also an eight-year high.  A convincing break suggests technical potential toward CAD0.9000.  

 

The Australian dollar, like the euro, finished the last week with two consecutive closes above the top of the Bollinger band.    This has not taken place since April and marked an important high.  While this time is seems different, rather than chase the Aussie higher, look for momentum players to buy into a half to a full cent decline.  The next immediate objective is near $0.9715 area, which corresponds to a 50% retracement of the decline since the April high, and then $0.9800.     

 

The Mexican peso has appreciated by about 4.4% against the US dollar since October 3.  However, the inside trading day record on October 18 may suggest a near-term consolidation phase lies ahead.  With a base near MXN12.75, the dollar can rise toward MXN12.93 initially.  The MXN13.00 area may provide a stronger cap.  Expectations of building for a rate cut at the end of next week.  We note that the other two times that the central bank has cut interest rates this year, the peso has rallied in response.  

 

Due to the government shutdown, the Commitment of Traders report on positioning in CME currency futures is still unavailable. 


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/dC2wMQ1uHrQ/story01.htm Marc To Market

Friday night football roundup

Sandy Creek 52, Alexander 42: Trailing with four minutes to play, the Patriots scored two late touchdowns to pull out the win. Sandy Creek (6-0-1, 4-0) hosts LaGrange next Friday.

Landmark 17, Pace 14: Stockton McGuire ran for a touchdown and kicked a field goal, and Joshua Cobb returned a fumble 99 yards for a score. The War Eagles (8-0, 4-0) are off next week and travel to Holy Innocents’ Nov. 1.

read more

via The Citizen http://www.thecitizen.com/articles/10-18-2013/friday-night-football-roundup

Sandy Creek 52, Alexander 42: Trailing with four minutes to play, the Patriots scored two late touchdowns to pull out the win. Sandy Creek (6-0-1, 4-0) hosts LaGrange next Friday.

Landmark 17, Pace 14: Stockton McGuire ran for a touchdown and kicked a field goal, and Joshua Cobb returned a fumble 99 yards for a score. The War Eagles (8-0, 4-0) are off next week and travel to Holy Innocents’ Nov. 1.

read more

Starr’s Mill 42, McIntosh 27

The McIntosh Chiefs started the 2013 season with six straight wins, and with a 20-0 lead at Starr’s Mill they appeared to be on their way to seven.

It was not to be.

The Panthers (3-4, 2-2) erupted for 35 unanswered points, including 21 in less than four minutes in the fourth quarter, and held off a late McIntosh rally for a 42-27 win on Senior Night.

read more

via The Citizen http://www.thecitizen.com/articles/10-18-2013/starrs-mill-42-mcintosh-27

The McIntosh Chiefs started the 2013 season with six straight wins, and with a 20-0 lead at Starr’s Mill they appeared to be on their way to seven.

It was not to be.

The Panthers (3-4, 2-2) erupted for 35 unanswered points, including 21 in less than four minutes in the fourth quarter, and held off a late McIntosh rally for a 42-27 win on Senior Night.

read more

Starr's Mill 42, McIntosh 27

The McIntosh Chiefs started the 2013 season with six straight wins, and with a 20-0 lead at Starr’s Mill they appeared to be on their way to seven.

It was not to be.

The Panthers (3-4, 2-2) erupted for 35 unanswered points, including 21 in less than four minutes in the fourth quarter, and held off a late McIntosh rally for a 42-27 win on Senior Night.

read more

via The Citizen http://www.thecitizen.com/articles/10-18-2013/starrs-mill-42-mcintosh-27

The McIntosh Chiefs started the 2013 season with six straight wins, and with a 20-0 lead at Starr’s Mill they appeared to be on their way to seven.

It was not to be.

The Panthers (3-4, 2-2) erupted for 35 unanswered points, including 21 in less than four minutes in the fourth quarter, and held off a late McIntosh rally for a 42-27 win on Senior Night.

read more