Peak Euphoria: Dow Shy Of Record Overbought

With the Dow Jones less than 100 points away from 20,000, it is moot to say that the only sentiment driving the market here, with the S&P trading at 25x actual GAAP P/E, is adrenaline and pure euphoria.

Just last night, we showed that the Dow was the most overbought in the past 20 years, while options traders have never been more bullish. Today, following the Dow’s surge right out of the gates, it is safe to say that the “Industrial” average, where Goldman Sachs has been the star performer, and which as of last night, was more overbought on just 4 previous occasions in the past century, is at record euphoria.

Putting similar RSI levels in comparison: August 1927, June 1944, July 1955, November 1996, and now December 2016… after each of the previous spikes, stocks fell back 4 to 5% within days.

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Man Told to Leave Six Flags Because He Looked Too Much Like Santa Claus

SantaA man who looks too much like Santa was forced to leave Six Flags in Arlington, Texas, because the park does not “knowingly allow individuals who are not approved by the park to interact with small children in this capacity.”

What disgusting thing had the man, Jerry Henderson, done? CBSDFW reports that a mom walking by had asked him to pose for a picture with her kids, and Henderson cheerfully complied:

“[I] knelt down, put my arms around them, and afterward I reached in my wife’s walker, pulled out two candy canes, handed it to them,” recalled Henderson.

Since when do we allow any male to put his arm around any child, even if his wife is there, even if the kids’ mom is there, even if he has a belly that shakes when he laughs like a bowl full of jelly?

Since never. Think of the children. A stranger touched them for several seconds. They may never recover.

Sorry, St. Nick, but the only behavior males should exhibit around children is stony-faced oblivion while running in the opposite direction.

Having behaved like a jolly old elf, Henderson says he was approached by park security official, who told him he had to leave.

I said, ‘For what reason?’ He said, ‘You look too much like Santa Claus.’ And I’m like, ‘Are you kidding me?'”

Mr. Henderson, the authorities do not joke about Christmas. Christmas is a very serious matter, best celebrated with a few background-checked relatives, preferably female. And no gifts, either. (Grooming.)

For safety’s sake, Mr. Henderson, ideally you should spend the holiday by yourself, away from all living things, except maybe your wife, in a room with a security camera. And kill the beard.

Merry Christmas to all (except adult males)!

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California’s Gift to Its Neighbors: New at Reason

California voters decided to raise taxes on cigarettes. That’s good news for some.

J.D. Tuccille writes:

For too many years, Arizona has led the pack—or at least taxed the hell out of it—with among the higher cigarette taxes in the West. “A cigarette tax higher than in neighboring states and cheaper prices on American Indian reservations have helped fuel a growing black market for cigarettes in Arizona,” the Cronkite News Service reported in 2014.

It’s true that few of us actually paid that $2.00 per pack tariff for a pack of smokes; with every single state bordering us stealing less from smokers and a long, handy border with Mexico, half of all of the cigarettes sold in the state are smuggled from elsewhere, according to research by the Mackinac Center for Public Policy and the Tax Foundation. Many Arizonans avoid getting mugged by enjoying life on the receiving end of smuggling routes. But we could be benefiting by running goods in the other direction.

And then Californians went to the polls on Election Day and hiked their cigarette taxes by $2.00 per pack. Business opportunities, here we come.

View this article.

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“Red, White And Boom” – Latest BofA Fund Survey Sees Near Record Euphoria, Plunge In “Cash On Sidelines”

In its latest monthly Fund Managers Survey, Bank of America gives readers two options for a title:

  • Red, White And Bullish, or
  • Red, White and Boom

Both capture the prevailing sentiment, because just months after gloom had set in within the professional investing class, with secular stagnation quietly mentioned as one of the prevailing concerns, optimism has soared to a near record high level. This is how BofA’s Michael Hartnett explains it:

Wall St. is bullish: expectations of “above trend” growth at five-year highs…

… global inflation expectations at second highest % since Jun 2004

… global profit expectations at six-year highs, with a  net 56% thinking global profits will improve next 12 months, up from net 29% last month, because of, well, Trump…

… just 6% forecast lower bond yields in 2017, leading to a plunge in allocations to bonds, which just hit a 12 month low (net 58% UW from net 48% UW last month).

 

… long US dollar by far world’s most “crowded trade”.

As a result of the violent moves in recent weeks, global bank stock positioning has hit record highs:

 

The optimism euphoria also means that all of the “cash on the sidelines” is no longer on the sidelines (although one wonders what happens to the cash that the sellers of risk assets pocket – does it go into some magical, parallel universe where it is no longer “on the sidelines?”).

As Bank of America shows, cash drops to 4.8% (from 5.0% in Nov, 5.8% in Oct); and warns that on three prior occasions cash down 1ppt in two months (in 2001 & 2002) risk rally “paused”; but this time may be different: “FMS does not yet show “peak greed”…cash levels still high relative to bonds (97th percentile), and equities (64th percentile).”

In terms of exposures, not surprisingly In December investors rotated out of “growth” (tech, healthcare) and “bond proxies” (utlities, telcos, staples) into resources, banks and cyclicals.

Expectations: Net 39% expect value to outperform growth (up from net 30% last month); 32% expect high-quality stocks to outperform low-quality stocks (down from net 42% last month). Highest % in 13 months expect high-volatiilty to outperform low-volatility and HY to outperform HG bonds.

 

FInally, while at this point it is silly to even think of such silly things as “risks”, this is what the consensus believes is the biggest “tail risk.”

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Trump Picks Rick Perry To Lead Energy Department (That He Wanted To Do Away With In 2011)

Trump’s string of ‘anti’-status quo appointments continues with his selection of former Texas governor Rick Perry to lead the Energy Department, which it is worth noting he wanted to do away with in 2011.

Perry twice ran for his party’s presidential nomination, including against Trump, presenting himself as pro-business candidate.

Perry’s selection is amusingly ironic, because five years ago, Perry wanted to eliminate the Energy Department: in an infamous 2011 Republican primary debate, Perry forgot that the Energy Department was one of the three federal government agencies he wanted to do away with. The other two were the Commerce and Education Departments. According to some pundits, the gaffe may have cost him a shot at the party’s 2012 nomination.

Perry, Texas’ longest-serving governor, was indicted in 2014 for abuse
of power and coercion after threatening to veto funds for a Travis
County office that investigates corruption unless the district attorney,
who had pleaded guilty to driving while intoxicated, resigned. Another
potential conflict of interest: Perry serves on the board of Energy Transfer Partners LP, the
company whose pipeline project has drawn opposition in North Dakota and
has become a rallying cry from environmentalists. While the Obama
administration has stalled the project, Trump has said federal approvals
for energy infrastructure need to come quicker.

Finally, those curious about Rick Perry’s policies, we bring your an
interview from June, where Perry questioned the science behind global
warning.  Here are the details:

During his 2012 presidential campaign, Perry regularly questioned climate science, saying that it hadn’t been settled. “There
are a substantial number of scientists who have manipulated data so
that they will have dollars rolling into their projects,”
Perry
claimed during one New Hampshire campaign stop. He called the EPA a
“cemetery for jobs.” In his pre-campaign book, Fed Up!, Perry referred
to efforts to tackle global warming as “hysteria” and described the
science a “contrived phony mess.” He even wrote that “we have been experiencing a cooling trend.”
Perry’s 2012 campaign collapsed when, during a debate, he forgot which
three cabinet-level departments he wanted to eliminate. He called for
axing Commerce and Education, but he famously couldn’t remember that
Energy was also on the list of federal agencies he’d proposed
eliminating. “Oops,” he finally said when he was unable name the
department.

At the Conservative Political Action Conference this in February
0215, Perry touted his record fighting smog. But he sidestepped climate
change and called for the Keystone XL Pipeline to be built. “The point
is, you can have job creation, and you can make your environment
better,” he said. “That ought to be our goal in this country, and it all
starts with energy policy. Open up the XL pipeline, create jobs.”

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Trump Picks Rick Perry To Lead Energy Department (That He Wanted To Do Away With In 2011)

Trump’s string of ‘anti’-status quo appointments continues with his selection of former Texas governor Rick Perry to lead the Energy Department, which it is worth noting he wanted to do away with in 2011.

Perry twice ran for his party’s presidential nomination, including against Trump, presenting himself as pro-business candidate.

Perry’s selection is amusingly ironic, because five years ago, Perry wanted to eliminate the Energy Department: in an infamous 2011 Republican primary debate, Perry forgot that the Energy Department was one of the three federal government agencies he wanted to do away with. The other two were the Commerce and Education Departments. According to some pundits, the gaffe may have cost him a shot at the party’s 2012 nomination.

Perry, Texas’ longest-serving governor, was indicted in 2014 for abuse
of power and coercion after threatening to veto funds for a Travis
County office that investigates corruption unless the district attorney,
who had pleaded guilty to driving while intoxicated, resigned. Another
potential conflict of interest: Perry serves on the board of Energy Transfer Partners LP, the
company whose pipeline project has drawn opposition in North Dakota and
has become a rallying cry from environmentalists. While the Obama
administration has stalled the project, Trump has said federal approvals
for energy infrastructure need to come quicker.

Finally, those curious about Rick Perry’s policies, we bring your an
interview from June, where Perry questioned the science behind global
warning.  Here are the details:

During his 2012 presidential campaign, Perry regularly questioned climate science, saying that it hadn’t been settled. “There
are a substantial number of scientists who have manipulated data so
that they will have dollars rolling into their projects,”
Perry
claimed during one New Hampshire campaign stop. He called the EPA a
“cemetery for jobs.” In his pre-campaign book, Fed Up!, Perry referred
to efforts to tackle global warming as “hysteria” and described the
science a “contrived phony mess.” He even wrote that “we have been experiencing a cooling trend.”
Perry’s 2012 campaign collapsed when, during a debate, he forgot which
three cabinet-level departments he wanted to eliminate. He called for
axing Commerce and Education, but he famously couldn’t remember that
Energy was also on the list of federal agencies he’d proposed
eliminating. “Oops,” he finally said when he was unable name the
department.

At the Conservative Political Action Conference this in February
0215, Perry touted his record fighting smog. But he sidestepped climate
change and called for the Keystone XL Pipeline to be built. “The point
is, you can have job creation, and you can make your environment
better,” he said. “That ought to be our goal in this country, and it all
starts with energy policy. Open up the XL pipeline, create jobs.”

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Gold Producers Have Underperformed And Will Continue to Lag – How To Take Advantage Of The Recent Gold Correction

In the mining sector, there is an old adage that is often invoked at the beginning of a new bull market – “producers will move before explorers and developers.” It might make intuitive sense, but the adage rings false…

Gold producers will always draw interest from generalist investors and the media due to their cash flows and larger market caps; however, gold explorers and developers are where the real gains can be made.

We completed an analysis of 40 producers, 95 developers, and 360 explorers to observe the relative performance of each group since the beginning of 2016. Our first chart measures the performance of the three groups relative to the price of gold, which was up 25% from January to August.

1

Cumulatively, producers notched impressive gains, rising 140% from January through August. Still, the producers underperformed explorers and developers substantially. Explorers gained 231% during the same period, while developers rose 264%.

Seeing that producers had the smallest gains of the three groups through August, rational observers might assume that the recent pullback in the gold sector would have affected them the least. That assumption would be totally wrong! Take a look at our next chart.

2

Since August, our sample of 40 producers has declined by 31%. Meanwhile, developers pulled back by 27% and explorers only fell by 13%.

The next logical question to ask is if this underperformance by producers is endemic to the early stages of gold bull markets or if this cycle has been an anomaly. To that end, we also examined the 2008 – 2011 bull market, this time using a basket of 21 producers, 76 developers, and 221 explorers.

3

Once again, explorers and developers clearly outperformed the producers. From start to finish, the performance of the producers clearly lagged behind explorers and developers, though the divergence did become particularly wide in the latter stages of the bull market.

Overall, during the 2008 to 2011 gold bull market, producers gained 298%, while developers and explorers rose an eye-popping 711% and 605% respectively.

It is obvious, then, how to best take advantage of the recent gold correction – target the best gold exploration and development companies in the market and buy their shares. We expect the current bull market to last another four or five years, with the price of gold potentially breaking $5,000 per ounce. This means that explorers and developers are poised to reach astronomical heights.

Follow us to see what we are buying for our portfolio.

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Bouncy Houses and American Idol: How Local Governments in Pennsylvania Blew Drilling Tax Revenue

Gas drilling companies tapping into the rich Marcellus shale formation that lies beneath wide swaths of Pennsylvania have to pay an “impact fee”—basically a tax, based on how much gas each well produces—to the state.

As the name suggests, the fee is supposed to help the government mitigate the potential environmental impacts of gas drilling. The state government skims some money off the top and the rest gets redistributed to counties and municipalities in parts of the state where gas drilling is taking place, theoretically to fund government-run ecology efforts or to rebuild infrastructure stressed by the influx of drilling companies and the people who work for them.

You can debate whether handing money to the state government is really the best way to counteract the potential environmental consequences of drilling for natural gas, but that’s for another day. For today, let’s focus on how governments in Pennsylvania have handled some of that money that they’ve demanded from gas drilling companies.

In the name of protecting the environment, remember.

An audit of impact fee revenue released earlier this month shows that North Strabane Township spent more than $32,000 of its impact fee revenue on what basically amounts to a giant party. Impact fee money was used to rent a bouncy house ($4,250) and to pay for a performance by former American Idol contestant Adam Brock ($1,200).

(As an aside: It says something about your status as a reality television singing sensation when you’re three-and-a-half times less expensive than a bouncy house.)

“I’m pro-people having fun at the holidays,” Eugene DePasquale, the state’s auditor general said, according to State Impact PA, a project of NPR. “But the impact fee was used for a bouncy house. Come on, that’s crazy.”

Township officials told State Impact PA they believed spending money on fireworks, a bouncy house and a former American Idol contestant was acceptable because the law creating the impact fee lets towns use the money for “parks and recreation,” and they were apparently using a generous definition of recreation.

The bouncy house might have been the most ridiculous expense, but state auditors say Pennsylvania counties and municipalities wasted millions of dollars in impact fee revenue. DePasquale said 24 percent of all impact fee spending by local governments was considered “questionable” by state auditors. Other misuses of the impact fee revenue might not be known because some municipalities didn’t fill out forms saying how they planned to use their cut of the dough.

Bradford County used $2.4 million in impact fee revenue to cover operating expenses of a correctional facility, including paying employees’ salaries and buying office supplies. The same county used $90,000 of impact fee cash to build a portable boat dock.

Susquehanna County used $5.2 million on payroll for the county district attorney’s office and bought the DA a new car (valued at $29,000).

Thanks to Pennsylvania’s gas drilling fee, judges in Lycoming County got newly refurbished offices, Green County built a new swimming pool, and Cumberland County built baseball fields.

There’s nothing wrong with swimming pools and baseball fields, of course, and one could argue that it might be better for those things to be paid for with tax dollars coming from gas drilling firms instead of from the pockets of local residents. Still, the whole point of the so-called “impact fee” was that it would be an, you know, impact fee—not a slush fund for local officials to blow on parties and new cars for prosecutors.

When there is a real need for those dollars—in the event, say, of a well blowout or a massive spill of fracking fluid—the state will have to find more money to deal with the actual impacts of gas drilling. Taxpayers will be put on the hook for costs that should be covered already and lawmakers will argue that the state should seize more money from gas drillers to cover the next disaster.

Then North Strabane Township can upgrade to the bouncy castle for their next party.

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Is China About to Trigger Another “August 2015”-Type Meltdown?

Just as we predicted, the Bank of Japan has begun to lose control.

Since the November US Presidential election, the Bank of Japan has been aggressively devaluing the Yen. They are doing this to take advantage of the brief window between the election and when Trump takes office and trade deals are renegotiated.

As I wrote previously, this scheme will work for a while, but eventually something will "break."

It just did.

When the Yen collapses, the $USD rises sharply. And this is a MASSIVE problem for China which has its currency pegged to the $USD.

China is the second largest economy in the world. And every day that the $USD moves higher, it puts tremendous pressure on China's financial system.

See the below story:

China’s foreign exchange reserves fell nearly $70bn last month as the country’s central bank burnt through more of its war chest in its battle to defend the renminbi from greater depreciation on the back of accelerating capital outflows.

Source: Financial Times

If you'll recall, it was precisely this situation that caused the market meltdown of August 2015…and January 2016.

We're set up for the another similar meltdown. Stocks are severely overbought. Everyone is super bullish. The markets are literally one giant lopsided trade waiting to implode.

THIS WILL HIT BEFORE THE END OF JANUARY.

Another Crisis is brewing… the time to prepare is now.

If you've yet to take action to prepare for this, we offer a FREE investment report called the Prepare and Profit From the Next Financial Crisis that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

We made 1,000 copies available for FREE the general public.

As we write this, there are fewer than 29 left.

To pick up yours, swing by….

http://ift.tt/2ePZt1g

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

 

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Meanwhile, Kanye West Arrives At Trump Tower

Following his pro-Trump outbursts (and subsequent nervous breakdown), Kanye West has been summoned to Trump Tower…

 

 

 

Aside from asking, and perhaps hoping, that Kanye will take over some vacant Fed chair position, we have no comment at this moment.

h/t @TalKopan

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