Hillary Clinton is a fair-weather friend to democracy, and a foe, as A. Barton Hinkle writes:
Hillary Clinton is a huge fan of democracy—just so long as it doesn’t get in her way.
HRC—Her Royal Clintonness—has not driven a car in two decades. Her list of speaking-engagement demands includes special pillows onstage and hummus and crudités offstage (crudités is a fancy word for veggies). She has been paid more than a half-million dollars for speaking to the swells at Goldman Sachs.
But that doesn’t mean she no longer cares about the little people! She does care. Deeply. We know this because she says so—and if there is anything Clinton is known for, it’s always telling the straight-up truth.
The February stock market bounce has reached a crossroads – will there be another leg higher or has the rally run its course?
The rally in stocks has reached an key juncture it would seem in many of the major indices. That includes our favorite index: the Value Line Geometric Composite (VLG). Once again, the VLG is an unweighted average of approximately 1700 stocks. The calculation of the index amounts to essentially the median stock performance among that universe. Thus, in our view, it is probably the best gauge of the true health of the broad stock market. If that is the case, the market’s health is truly up in the air at this point.
Consider first where the VLG is coming from. On January 6, the VLG broke down from what we determined to be a pass/fail line of support around 436, based on key Fibonacci Retracement levels of the post-2009 bull market. Indeed, the index plunged immediately and severely upon breaking that level. The next support we earmarked below stood at 382, or about 12% lower. It took the VLG just 2 weeks to hit that level, which we noted on January 20.
The index held that 382 level on January 20, as well as on a subsequent re-test on February 11. Since then, the VLG has bounced solidly, moving as high as 415 yesterday before encountering multiple resistance layers. Today, the VLG, settled at 409.85. As quant-oriented managers, this is an interesting juncture to us. To wit: a move from 409 back up to 436 would mark a rise of +6.6015%. Meanwhile, a drop back down to 382 from 409 would signify a loss of -6.6015%. So which spot is the next destination? Or, in other words, is the rally glass half full or half empty?
First off, what sort of potential resistance are we seeing in this vicinity? The layers of potential resistance are plentiful and formidable, enough to engender a “half-empty” attitude. Among others, they include
The 23.6% Fibonacci Retracement of the May-February decline
The 38.2% Fibonacci Retracement of the December-February decline
The late January bounce highs
The post-December Down trendline
The 50-day simple moving average
Price is truth, as they say, and the onus is certainly on the bulls to prove that they can vault the VLG over this area of resistance. That said, there are plenty of clues to be found beyond price that often serve instructively in determining where prices are likely to go. This includes price-based derivative indicators (e.g., Relative Strength Index,or RSI) that measure the degree of momentum within a move. While we do not typically use these classical technical analysis tools, they are very popular among traders and can prove useful at times.
For example, traders often use RSI to spot divergences in price vs. momentum. For example, note on the chart how the VLG made a lower closing low in February versus its January 20 low, while RSI held above that initial low. This positive divergence can (but not always) give a head’s up regarding a potential upside reversal. In this case, prices did indeed turn up, leading to this late February rally. Note also the post-December down trendlines on price and RSI. The VLG is bumping into the trendline while the RSI has broken above. This is another potential positive divergence that could be a harbinger of a trendline break in prices as well. Mark one down for the glass “half-full” crowd.
Lastly, while price is the final arbiter of market action, it is not exactly predictive. That is why we use a stable of indicators based on various measures of breadth and momentum of breadth, et al. to instruct us as to the likely course of future prices. While this approach does not always hold true, particularly for indices that are heavily weighted toward a relatively small number of constituents, it is especially helpful on a broad, equal-weight index like the VLG. Currently, we would assess the status of most of these proprietary indicators as “constructive”. That is, they are positively oriented and supportive of potentially higher prices.
So where’s the next stop for stock prices, 6.6015% higher or lower? While the immediate resistance is considerable, there is ample evidence to suggest that prices could overcome that resistance eventually. We understand that a rally of that magnitude represents a fairly modest goal for investors. However, if our longer-term assessment of the stock market is close to accurate, considering the likely potential range of prices over the next 6 months to several years, we would take that gain in a heartbeat.
Although everyone watching has been convinced that Europe’s disastrous economy and related debt crisis would be the spark to unravel the European Union project, it appears history has its own plans.
While EU technocrats have demonstrated an uncanny ability to scheme, threaten, kick the can and lie their way around the debt crisis, the migrant crisis will prove to be a much graver threat to the project. Strikingly, all it took was a few weeks of unrelenting migrants crossing into EU borders to put an end what is essentially the only achievement of the European Union — the Schengen system of borderless travel.
Without that, what is the EU really? A collection of nation-states forced by bureaucrats to pretend they are part of an artificial fantasy superstate called Europe? An amalgamation of debt serfs and technocratic overlords? See what I’m getting at?
Conventional wisdom told us that refugee levels would plunge to a manageable level over the winter months before picking up again in the spring and summer. While they certainly have come down, they appear to be much higher than expected at a shocking eight times the level compared to the same period last year.
The last time we looked at the fascinating robotic products of Boston Dynamics, a company which Google prudently acquired quietly in 2013, it was a cute petting zoo of clumsy robotic “animals” including a “big dog”, a “wild cat”, and a “cheetah.” They could barely walk for a few minutes without collapsing or suffering some terminal failure.
Barely over two years later Google’s robots, no longer cute little animals, are not only all grown up but judging by the progress revealed in the company’s latest progress video, are a few months from being full 5’9″, 180 lbs humanoid automatons who can not only walk, pick themselves up, open doors, and carry heavy loads, but are this close from replacing millions of workers in menial, repetitive occupations as well as forming an army of robots best seen until recently in the science fiction section of your favorite streaming movie provider.
Worse, they are downright terrifying because after watching the clip below we can’t decide which flashbacks are stronger: to SkyNet or RoboCop.
This is how Boston Dynamics intros the following disturbing video:
A new version of Atlas, designed to operate outdoors and inside buildings. It is specialized for mobile manipulation. It is electrically powered and hydraulically actuated. It uses sensors in its body and legs to balance and LIDAR and stereo sensors in its head to avoid obstacles, assess the terrain, help with navigation and manipulate objects. This version of Atlas is about 5′ 9″ tall (about a head shorter than the DRC Atlas) and weighs 180 lbs.
In other words the “Atlas” is cheaper, faster, more efficient, and never complaining version of most minimum wage workers and soon, army soldiers.
A growing number of investors are beginning to realize that Central Banks are effectively out of ammo (for now).
Last week I noted that the Bank of Japan’s implementation of NIRP only generated a brief rally in Japanese stocks. That rally has since been obliterated as Japanese stocks collapsed 10%.
This collapse has finally prompted the mainstream financial media to question NIRP. It’s a shame no one bothered to question NIRP, ZIRP, and QE when the markets were still rallying!
HSBC: Sweden's Experience Shows Negative Rates Haven't Worked
The ‘Monetary Madness’ That’s Pushing Japanese Bonds Negative
Negative Interest Rates Can Hurt Global Stocks
COLUMN-Banks drink from NIRP's poisoned well: James Saft
H/T Bill King for noting the change in media tone.
I point this out because it indicates that we are at a critical turning point. Between 2009 and last week, the financial media rarely questioned Central Bank policy, if ever.
The fact that we are now seeing numerous articles criticizing NIRP and Central Banks, tells us that psychologically a significant shift has taken place. That shift will see growing criticism of Central Banks along with an increase in bearish sentiment amongst investors.
This shift was also evident in today’s Q&A session between Fed Chair Janet Yellen and Congress. For the first time in recent memory, a Fed Chair was grilled on the legality and legitimacy of Fed Policy by members of Congress (with the exception of former Congressman Ron Paul).
Does this mean that Central Banks will simply “give up and go home?”
Yes and No.
For certain, the bar has been set much higher for Central Bank monetary policy. Interest rate cuts alone won’t cut it anymore. The ECB has cut rates into NIRP three times. None of these cuts produced a significant stock rally. Only QE did.
Similarly, the Bank of Japan has obtained its best results with QE programs. As I noted previously NIRP barely even bought 24 hours’ worth of market gains.
In simple terms, unless a new large-scale QE program or direct money printing is announced, markets are unlikely to react strongly to new monetary policy from Central Banks.
Another Crisis is coming. Smart investors are preparing now.
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Last week the Canadian Island of Cape Breton, Nova Scotia, off the Atlantic Seaboard near Maine, made an unusual offer to the American public.
If Donald Trump wins, move to Cape Breton.
There’s even a whole website about this, though not one officially affiliated with the local government.
This is something that happens in every election cycle.
Politics is invariably polarizing. Strong candidates have an uncanny ability to strike tremendous hope in their supporters and incredible fear in their detractors, and it’s commonplace for people to threaten strong responses if someone they don’t like is elected.
Johnny Depp famously threatened to move overseas if George W. Bush won the election.
Bush won. Depp left.
With this year’s election we’re sure to see much more of this, as emotions are already boiling.
There are so many people right now amazed that they lived to see the day when a card-carrying socialist is a leading contender to become President of the United States.
Of course, it’s not about any single person.
As Douglas Adams wrote in the Hitchhiker’s Guide to the Galaxy (from which this headline also comes), “anyone who is capable of getting themselves made President should on no account be allowed to do the job.”
Throughout my travels I’ve met a lot of people who have done the same, having reached their breaking points with one national election or another.
That feeling is totally understandable. Sometimes it requires powerful emotions of shock and astonishment to make us reach our breaking point, to shake us from our apathy, and to finally propel us into taking action.
But there’s a big danger here. These are important decisions. And such decisions should not be made emotionally. They should be rational, data-driven, and well-planned.
To say “I’m leaving the country if [insert most despised candidate] wins” is a knee-jerk, emotional response.
Look, moving abroad may very well the right answer for many.
There are tremendous tax and legal benefits of doing so, unique financial opportunities, and a host of other advantages that can lead to having a nearly unparalleled lifestyle abroad that is richer, fuller, and healthier.
But again, this should not be done emotionally and haphazardly. It should be based on rational analysis and a credible plan.
Where would you go? Where would you live once you got there? Where would your kids go to school? How would you establish legal residency? And so on.
These are important details and require research and careful thought.
The bottom line is—it makes a lot of sense to have a place to go if things in your home country ever got really uncomfortable.
Maybe you never even need to exercise that Plan B. But even if nothing ever gets as bad as you fear, you won’t be worse off for having a backup option.
Yet if the trend continues and the day ever came when you did need to get out of Dodge, you don’t want to start figuring it all out while you’re packing your bags.
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We haven’t written about Australia’s residential real estate bubble for some time (readers may want to check out last year’s post “Australia’s Bubble Trouble”, which contains numerous relevant charts and data).
Property auction in Sydney
Our friend Jonathan Tepper of Variant Perception has recently visited Australia for a fact-finding tour (more on this further below), so we felt we might as well take the opportunity to write an update on the topic.
House prices in Sidney vs. the administered interest rate of the Reserve Bank of Australia. As you will see below, interest rates aren’t the only driver of the bubble – click to enlarge.
Our reader D.S., who has moved to Australia five years ago, has provided us with a number of very interesting observations on the Australian housing market late last year, which we are sharing below. As D.S. notes, there are a number of interesting wrinkles specific to Australia’s real estate market, which outsiders are generally not likely to be aware of. We have highlighted a few passages in his report below which we think are especially important:
“The housing bubble in Australia has been talked about so extensively and has lasted so long without any harm coming to it that people here have pretty much dismissed the very possibility of a crash – including, it has to be said, the chances of a recession. The reason I was motivated to write this note is because there are some (I believe) unique dynamics at play in this housing market, which aren’t necessarily apparent to the outsider – at least, I was never aware of them until I moved here.
Australia has one of the highest levels of home ownership in the developed world and, in common with other Anglophone countries, the home is commonly viewed as people’s ‘primary asset’ i.e. the financial windfall they will one day be leaving to their children. When the property market is hot — as it has been in the past couple of years — people love nothing more than to talk about property values and how well they’re doing. Property developers, meanwhile, are presently building furiously in order to sell into current demand. Perhaps this is all that is propping up GDP growth right now (making the latest weak print all the more relevant).
To begin: Australia has a fairly unique approach to ensuring its citizens are provided for in retirement i.e. they have a system of mandatory saving for all workers – superannuation – which is supposed to provide the majority of contributors a healthy lump sum on which to retire. Funds are essentially deducted from each salary check and the proceeds typically invested in stocks by their friendly investment firm (think mutual fund, long-only, index-hugging types). There are a number of major issues with this system, not least declining forecast returns (in recent years), which means that future employee contributions will need to rise sharply, but that’s a discussion for another time.
Leaving aside the ideological objections to ‘forced saving’, this arrangement appears quite sensible as the State certainly doesn’t want to end up providing for those who would rather ignore retirement planning altogether. But the Superannuation system also means that Australians have one of the highest per capita equity exposures in the world (not that investment in equities is mandatory either but, culturally, equities is pretty much the only show in this town).
Again, this may not appear to be a bad thing, but here’s the problem: Australia’s banking oligopoly makes up fully 30+% of the entire main index (where the majority of Superannuation is invested) and the actual exposure to banks may be greater given that the ‘Big 4’ banking stocks have the most attractive dividend yields in the index. A quick glance at the ‘Big 4’ balance sheets reveals that the biggest single exposure they have is to is residential real estate (60+% in each case). This leaves the average Australian home-owner much more exposed to the real-estate market than most would appreciate.
But it doesn’t end there. Australia has a perverse tax subsidy called ‘negative gearing’, the origins of which I am not certain, but it effectively allows owners of investment properties to offset any losses they incur on that investment against personal income for tax purposes. This has made owning investment property de rigeur among many middle class Australians and, again, Australians have one of the highest levels of investment property ownership in the developed world (no doubt aided by this incentive). The incentive, of course, means that such property is very often acquired at what would be deemed, absent the subsidy, economically unattractive levels.
The ‘negative gearing’ subsidy is widely held by the public to be too politically sensitive to be considered for ‘review’, but talk of winding it back has started to crop up in the media for the first time in many years. In common with just about every other DM country the fiscal situation here is deteriorating and the government is under increasing pressure to address it. Negative gearing, depending on the source, costs the treasury some $8bn to $16bn per annum and the left-leaning opposition party, the ALP, is contemplating whether to make negative gearing one of the central policy planks at the next election (investment properties are largely deemed the domain of the better-off LNP supporter, after all).
And it gets worse: the government, in recent years, made Self Managed Superannuation Funds (SMSFs) more broadly accessible to its citizens so that they weren’t held hostage by the inherent limitations of mutual fund managers. In a subsequent development, SMSFs were then allowed (indeed, encouraged) to include residential property, which has led to a stampede by retirement savers into the investment property market — aided by a tsunami of positive media coverage. This change is undoubtedly partially responsible for the latest big leg up in the already substantial bubble. Apartment blocks have been going up like mushrooms all over metropolitan Australia to meet demand from investment buyers, Superannuation funds and the ubiquitous Chinese (collectively a whopping 40% of all buyers). Meanwhile, first-time buyers are reportedly, at their lowest levels (as a proportion of buyers) in history.
Glenn Stevens (the Reserve Bank of Australia governor) has been fairly open in admitting that this next leg up in the property boom is designed to build a bridge to a resource-sector recovery (whenever that may be) but that strikes me as a hell of a risk given the state of the global economy and its current trajectory. The property bubble is everything to this economy and the country’s citizens, whether they know it or not, are ‘all in’.
(emphasis added)
Well, good grief.
Australia’s All Ordinaries Index has made no net progress in the past decade. It first moved sharply higher on the back of the commodities bull market, while it is now primarily held up by the “big four” bank stocks, which in turn are probably regarded as the main beneficiaries of the housing bubble – as long as it continues, that is – click to enlarge.
In short, Australia’s citizens have far greater exposure to the bubble than is immediately obvious. On the one hand, property investment has become a kind of national pastime which people have taken to with gay abandon, seemingly oblivious to the risks. On the other hand, given that retirement savings are largely invested in the stock market, in which banks represent a 30% weight, they are exposed to the bubble indirectly through their pension plans as well.
Mortgage lending has grown at an enormous pace in Australia and as always happens in major credit bubbles, it has taken on ever more irresponsible forms (interest only loans have become ubiquitous – nearly half of all new mortgages are interest only loans these days). A serious downturn in house prices would undoubtedly lead to a major crisis in the banking system. People have gotten so used to the bubble’s seeming imperviousness, that neither insane practices nor insane prices seem to be fazing those involved any longer.
Those who so to speak “live inside the bubble” are no longer aware of its dangers. The mentality of Australians is generally well aligned with the country’s great weather – their outlook usually tends to be “happy-go-lucky” and optimistic. Given this fact and their experience to date, why would they heed the warnings of curmudgeons like us?
Consider for instance that eleven months have passed since we have last written about the situation. We suspected at the time that the demise of the commodities boom might finally trip Australia’s housing bubble up – and yet, here we are, with home prices in most regions of the country continuing to rise as if nothing had happened. However, this doesn’t mean that such warnings have become less relevant – on the contrary, they have become more so.
Australian household debt as a percentage of disposable income is at an all time high and has by now reached levels well beyond good and evil.
Evidence of a Bubble in its Late Stages
How much longer can the boom continue? D.S. has provided us with a personal anecdote that adds some color on this point:
“My neighbor is a valuer [ed note: appraiser] – he does property valuation work for banks and various other clients. I expressed concerns to him about the mind-boggling number of apartment blocks that have sprung up in our area (suburban, residential) in the past 12 months and he admitted that, privately, there are huge concerns in the industry over the glut that has developed, not just in our local area – the picture is the same all over the city (we are in Brisbane, Australia’s 3rd city). And many developments still haven’t even ‘broken dirt’ yet. He mentioned that during – and long after – the 2008 financial crisis, banks demanded developers pre-sell nearly 100% of apartments before they would commit to financing them. Recently, standards have plummeted and banks are falling over themselves to make loans. Pre-sales requirements are now as low a 15%. Incentives like guaranteed minimum rental returns for the first 12 months are commonplace and, often these run to three years guaranteed.
There is also something quite curious about this latest building boom: in many instances blocks of apartments don’t appear to go on sale — having been built, there remains a complete absence of ‘For Sale’ signs at the properties and few or no adverts at all in the local media – as though they’ve been built and just abandoned. My neighbor confirmed that, in many cases, the apartments are not being marketed locally at all but to investors in other States and through dedicated Chinese agents. Then again, if they are selling, there would surely be ‘For Lease’ or ‘For Rent’ signs going up (there are few, if any) but more than 80% of local apartments (my observation) remain unoccupied.”
(emphasis added)
Indeed, tentative evidence is beginning to emerge that indicates that the bubble is probably entering its final stretch. Some of it is anecdotal, such as the observations related by D.S. above, but there are also a few warning signs detectable in the data. For instance, prices in some regions have begun to look a bit wobbly of late. More importantly, loan approvals for investors have noticeably decreased, something that has last happened during the 2008 financial crisis:
Australian house prices by region and mortgage loan approvals – in some regions, prices are coming under pressure, while lending to investors has begun to decrease. Loan growth has mostly shifted to owner-occupiers instead – click to enlarge.
There is reason to believe that these recent developments are connected with the commodities bust. While the housing bubble has for a while taken on a life of its own, not least due to sharply declining interest rates and the effects of the government incentives outlined above, real estate prices in regions that are highly dependent on the mining business have been hit hard. This is apparently not felt in the large cities as of yet, but we suspect that the losses are beginning to add up – and that will inevitably begin to impact other regions as well (for some anecdotal color on this specific point, see also the video further below).
Data on broad money supply and credit growth likewise suggest that a major pillar supporting the boom is threatening to crumble – credit growth is lately only accelerating in the mortgage market, while it is flattening, resp. declining in other sectors. This has led to a slowdown in money supply growth in spite of the RBA’s loose monetary policy.
Australian money supply growth and credit growth by sector: consumer lending has come to halt, while growth in business lending is beginning to stall out. Only mortgage lending growth has still accelerated recently – but for how long can this continue? – click to enlarge.
“Home Groans”
This brings us to Jonathan Tepper’s fact-finding tour. Australia’s 60 Minutes has interviewed him and accompanied him to a home auction for a report aptly entitled “Home Groans”. Jonathan has experienced Spain’s housing bubble first hand (and predicted its demise in timely fashion), so it is probably fair to say that he should be inured to bubble behavior. However, even he is seemingly stunned by what he is seeing.
The video segment begins with a report on Kate Maloney, the better half of a couple once crowned “Australia’s property investors of the year” (in 2012) – who now find themselves bankrupt, after borrowing over A$ 6 million which they invested in homes in a coal mining town in Queensland. In the meantime, house prices have crashed there: homes that used to sell for A$ 900,000 can be sold for A$ 180,000 nowadays – “if you’re lucky”, as Kate Maloney wistfully admits.
As Jonathan points out, the entire country seems to be in the grip of “collective madness”, as “everyone is borrowing more than they should”. What happened in the small coal mining town in Queensland will eventually happen everywhere. Given the astonishing extent of household indebtedness we have little doubt that this will lead to a major crisis – and quite likely it will be the worst economic and financial crisis to hit Australia in the entire post WW2 era.
To this it should be remembered that Australia’s banks are presumably still quite dependent on wholesale funding originated in London. This turned out to be a major Achilles heel of the banking system during the 2008 crisis, so perhaps they have in the meantime diversified their funding sources a bit. We still think that this is going to become a factor again once the crisis begins.
Readers should definitely invest the 15 minutes it will take to watch the 60 Minutes video below – it is really quite an eyeopener. A quite interesting detail is that banks are apparently prepared to approve loans even if they recognize the related dangers. They don’t really check whether people will be able to repay their mortgages in stress situations. This is typical late stage bubble behavior.
60 Minutes with Jonathan Tepper – “Home Groans”
We have to agree with Jonathan that there is really only one word to properly describe Australia’s housing bubble: Insane. As he says, all that remains to be determined is when exactly the bust will begin. Considering the data points presented above, we believe it will be sooner rather than later.
Conclusion
As the Australian property boom has once again shown, bubbles driven by loose monetary policy have a tendency to last much longer than seems possible to reasonable observers. In this particular case, the boom has already progressed to a rare extreme: with home prices at 10 to 12 times disposable income (far higher than the peaks attained in the housing bubbles in the US, Ireland and Spain), the end is clearly getting close.
Australian home-owners, property investors and banks will be in for quite a rude awakening. Readers should perhaps take a minute to commiserate with them and then give some thought to how money might be made from the situation. People based in Australia should definitely ponder how to best hedge themselves against the inevitable denouement.
We cannot give any concrete recommendations at this juncture, but there are obviously many possibilities (such as buying CDS on bank stocks or shorting financial sector and construction stocks, to name a few examples). This is something everyone will have to find out and decide for himself. We merely want to make the point that every crisis is at the same time an opportunity – and the best opportunities tend to present themselves while most people are still blissfully unaware of the impending disaster.
Addendum: Additional Footage
Jonathan’s Twitter feed has some additional video material on the property auction in Sidney that didn’t make it into the final cut of the 60 Minutes show (“Extra Minutes”).
From a broadly defined libertarian perspective, Connecticut’s Democratic Gov. Dannel Malloy is pretty meh, especially on taxes (he’s for increasing basically all of them) and on Second Amendment issues.
But unlike a lot of supposedly small-government types with Rs next to their names, he’s also worked to decriminalize pot in The Nutmeg State, and a while ago he signed a bill legalizing the sale of booze on Sundays.
Now, he’s ready to liberalize the liquor market even more, by ending the state’s 35-year-old practice of enforcing minimum prices for booze.
“When in doubt, stand up for the consumer,” Malloy told The Associated Press.
He estimated prices in Connecticut are $4 to $12 more per bottle than other states. “And the idea that Connecticut consumers are paying so much more money for wine and spirts than are paid by the surrounding states is quite indefensible.”
Earlier this week, small-store owners protested the change, saying that they wouldn’t be able to compete with bigger stores and chains. And that what’s best for them, as opposed to the consumer, should be first in the minds of the law:
Nelson Gonzalez, owner of The Grog Shop of Torrington, said the liquor industry is being treated differently than other industries.
“Connecticut residents go to Lee, Massachusetts to buy clothing,” Gonzalez wrote to the legislature. “Why isn’t the governor demanding that all clothing retailers lower their prices? I never see anyone pushing for lower gas prices, cigarette prices or other consumables that are of higher cost in this state. Or why do we pay a personal property tax on our car, boat or motorcycle when other states don’t charge this tax?”
To which Malloy responded,
“Why would government force residents to pay artificially high prices?” Malloy asked. “It’s illogical and backwards. We need to be competitive with surrounding states, who have lower prices – and we need to let the market work instead of allowing backwards laws to remain on the books.”
Malloy added, “You’re either for inflated, artificially high prices, or you’re against them.’
Which sounds about right. And now, Gov. Malloy, you might want to get cracking on how to lower Connecticut’s combined state-and-local tax burden, which at 12.6 percent is second-highest in the country. Like liquor prices, taxes can be inflated and artificially. And you’re either for them or against them. Or at least that’s what I hear.
Back in 2010, then-Gov. Bob McDonnell of Virginia had promised to privatize that state’s publicly owned and operated liquor stores. He didn’t get very far due to an unlikely coalition of religious legislators opposed to drink on moral grounds and glad-handing pols who wanted to keep a source of patronage jobs. Check out our Reason TV doc on the matter.
Following last night's major build (from API), DOE reported a bigger than expected Crude build (3.5mm vs 3.25 exp). Crude prices jerked higher on this news as it was less than the API print of +7.1mm build and Gasoline and Distillates inventories dropped. However, the gains are not holding as Cushing inventories rose 333k barrels (the 15th build in the last 16 weeks.
API:
Crude +7.1mm (3mm exp)
Cushing +307k (300k exp)
Gasoline +569k (-1mm exp)
Distillates -267k (-700k exp)
DOE:
*CRUDE OIL INVENTORIES ROSE 3.50 MLN BARRELS, EIA SAYS
*CUSHING CRUDE OIL INVENTORIES ROSE 333,000 BBL, EIA SAYS
*DISTILLATE INVENTORIES FELL 1.66 MLN BARRELS, EIA SAYS
*GASOLINE INVENTORIES FELL 2.24 MLN BARRELS, EIA SAYS
In recent weeks Bank of America’s new chief technician Stephen Suttmeier has been surprisingly bearish, predicting that the rally is over, as Tom DeMark cautioned yesterday, key support levels are not defended in which case the S&P 500 is looking at a substantially greater drop. Today, his skepticism reached new heights, when he warned that should the failure to break out higher persist then the market is facing a drop to as low ast 1575-1600, something which even Goldman now agrees with.
Below is an excerpt from his latest attempt at a diplomatic guide down:
The S&P 500 has not decisively broken down but the risk remains for a distribution top that goes back nearly 2-years. Resistances are 1950 and 1990-2025, but we cannot rule out a tactical breakout above 1950 that would suggest an interim double bottom off 1812-1810 that favors a rally to 2085. Even this tactically bullish scenario would mark another lower high within the downtrend from last May. At this point, the pattern and longer-term indicators suggest selling into rallies. Should the S&P 500 “The Generals” follow the weakness in the Value Line, NYSE, Russell 2000, and S&P Midcap 400 “The Troops”, there is risk below 1812-1810 toward 1730 (38.2% of 2011-2015 rally) and then 1600- 1575.”
Or just a breakdown in both 7 years of momentum and central bank credibility.
However, Buried just a little deeper in the note, is his far less politically correct assessment, one which suggests that with most indicators rolling over, the last one to follow will be price, especially now that as Jack Lew explained there will be no surprise G-20 “rabbit in the hat” moment in Shanghai over the coming weekend.
Many indicators rolled over in advance of price, which is bearish
New year-long+ lows for S&P 500 on-balance-volume = distribution
S&P 500 VIGOR broke the October 2015/October 2014 lows = distribution
The US Most Active advance-decline line has completed a top. Similar tops precede/coincided with S&P 500 breakdowns in late 2007 and 2000.
Weekly global index-level advance-decline line remain weak
The Dow Theory Sell Signal in late August was reconfirmed on February 11
Monthly MACD sell signal last March and the first weekly MACD sell signal below zero since 2008 in early January. Bullish daily MACD & VXV/VIX support a tactical bounce.
A rise off extreme lows for net free credit (free credit balances in cash and margin accounts net of the debit balance in margin accounts) could exacerbate an equity market sell-off.
The high yield market remains a risk with the US high yield index in a weaker pattern than the S&P 500. HY OAS has widened out of a 3-year bottom, similar to late 2007 / late 2008 – just before the financial crisis.
Growth weakening relative to Value for large caps, small caps, and MSCI ACWI. Relative breakdowns for FANG (FB, AMZN, NFLX, GOOGL) and NASDAQ 100 leadership suggests that “Generals” have begun to follow the “Troops”.
Bearish January Barometer and the S&P 500 is not following the normally bullish seasonal periods of November-January and November-April
2016 is a Presidential Election year. The average return for an Election year with a non-1st term President is -3.2% vs. 14.1% in an Election year with a 1st term President and 7.6% for all Presidential Election years
Looks like central planners are going to have their hands full to preserve years of a carefully, if artificially, erected “wealth effect.”
