Tag: finance

For a while it seemed that the Vancouver housing bubble, the direct result of a relentless tidal wave of Chinese “hot money”, had burst after last August the British Columbia province implemented a 15% property tax to stem the inflow of offshore funds. And indeed, in the immediate months that followed, Vancouver’s housing priced tumbled from record highs.

However, it was not meant to be, and less than a year later, the Vancouver housing bubble is back, and it’s (almost) bigger than ever.

Over the past few months, with many suspecting – as we did – that the housing market in Vancouver had finally normalized, attention shifted to what emerged as the next hotbed of rampant housing speculation in Canada, Toronto, where last month average selling prices surged by 33%.

As it now turns out, ignoring Vancouver, and underestimating the persistence of aggressive Chinese buyers turned out to be a mistake, because earlier today the Real Estate Board of Greater Vancouver announced in its latest monthly report that while home sales in the Vancouver housing market had predictably slowed down in April compared with a year ago, prices – which had dipped slightly in recent months- once again surged.

First the (somewhat) good news: the overall turnover in the Vancouver resi market slowed down appreciably, with property sales in the region totaling 3,553 in April 2017, a 25.7% decline compared to April 2016 when 4,781 homes sold and a 0.7% decrease from the 3,579 sales recorded in March 2017. Sales of single-family homes in April 2017 were hit the hardest, reaching 1,211, a decrease of 38.8% from the 1,979 detached sales recorded in April 2016. Meanwhile, sales of apartment, or condominium, properties reached 1,722 in April 2017, a decrease of 18.3 per cent compared to the 2,107 sales in April 2016.

Yet while sellers and buyers were less likely to agree on a closing price than just a few months ago, that does not mean that sellers were more aggressive, or that prices had declined at all. In fact quite the opposite: the benchmark price for all types of residential properties in Metro Vancouver, Canada’s most expensive real estate market, was C$941,100 ($686,583.50) in April. That was up 5 percent over the past three months and 11.4 percent higher compared with a year ago.

The breakdown was even more stark by category:

• For condominiums, the benchmark price was C$554,100 last month, a 16.6% jump over the past 12 months and 3.1% more than March.
• The benchmark price of an attached unit was $701,800, 15.3% more than a year ago, and a 2.4% increase compared to March 2017.
• The benchmark price for detached properties is $1,516,500, an 8.1% increase over the last 12 months and a 1.8 per cent increase compared to March 2017.

And the visual testament to just how strongly the Vancouver housing bubble has returned, and as of April has almost surpassed last year’s all time highs:

In other words, all that the 15% surtax achieved was to drastically slowdown the rate of transactions (or perhaps home flipping). Meanwhile, as sellers held out to find more aggressive buyers, they were in luck as the new wave of buyers has emerged, and undeterred by the 15% premium, they have been slowly but surely lifting all available offers.

“In the condominium and townhome markets, demand has been increasing for months and supply is not keeping pace, said the board’s president, Jill Oudil. “This dynamic is causing prices to increase and making multiple-offer scenarios the norm,” she said in a statement.

She added that “Home buyers are looking to get into the market and they’re facing fierce competition”, and it mostly comes out of China. Or perhaps it is simply other Canadians armed with cheap money loans, rushing to fill the void, because as the following charts show, whether it is due to Chinese buyers or not, China has a very big housing problem on its hands, and explains why the recent collapse of alt-mortgage lender Home Capital Group, which accounts for just 1% of all loans in the market, has escalated all the way to the finance minister. The reason is simple: one the first domino falls, nobody knows just how far the resultant avalanche will go.

To put Canada’s housing market, and bubble, in perspective, first here is a chart of total Canadian household debt. Most of this is in the form of mortgages.

Next, despite Canada’s low rates, the debt service ratio of an average Canadian household is nearly 40% higher than when compared to the US.

And finally, the punchline: indexed home prices in Canada compared to the US.

In retrospect, perhaps Canada was lucky that the attempt to deflate the Vancouver housing bubble failed, had it succeeded and spread across the nation, leading to a collapse in collateral values and widespread defaults, the “mean-reversion” outcome may have been far more devastating. Which of course, is not to say that Canada’s problem has been fixed, but at least for the time being, the can has been kicked once again.

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Back in mid-January Bridgewater's Ray Dalio, speaking at the World Economic Forum in Davos, offered up his first thoughts on the populist wave sweeping across the globe (we covered it here).

And, once you've recovered from the laughing fit inspired by the irony of a bunch of billionaires sitting around discussing their displeasure with the masses of the world voting to undo their decades of power consolidation, you can continue with the following summary of Dalio's comments from Bloomberg:

DALIO:  POPULISM MOST IMPORTANT ISSUE GLOBALLY

DALIO: POPULISM IS BY DEFINITION NATIONALIST

DALIO: POPULISM IS POLAR OPPOSITE OF DAVOS

DALIO: POPULISM IS AN EXPRESSION OF `FED-UP-ISM’

DALIO: WE’LL SEE MORE PROTECTIONISM, REVERSAL OF GLOBALISM

DALIO: `NATIONALIZATION, PROVINCIALIZATION MAY TAKE HOLD’

DALIO: GLOBALIZATION HELPED REDUCE WEALTH GAPS INTERNATIONALLY

DALIO: DEREGULATION HAS CONS BUT ALSO PROS; GETS THINGS GOING

DALIO: CAN MIDDLE BE COHESIVE ENOUGH TO CURB EXTREMISM?

DALIO: TECHNOLOGY, GLOBALIZATION CAUSING INCOME DIFFERENCES

DALIO: POPULISM SCARES ME

…suffice it to say that he's not a big fan of populism.

Therefore, it should probably come as little surprise that, as we noted recently, after initially praising Trump's policies, Dalio turned sour on the new administration shortly after his trip to Davos…

“Nationalism, protectionism and militarism increase global tensions and the risks of conflict. For these reasons, while we remain open-minded, we are increasingly concerned about the emerging policies of the Trump administration.”

All of which culminated with a new, massive 60-page report from Dalio, entitled "Populism: The Phenomenon", which, in addition to reviewing the history behind historical populist waves around the world, put on full display Dalio's fears about the economic consequences of a Trump administration.

Populism is not well understood because, over the past several decades, it has been infrequent in emerging countries (e.g., Chávez’s Venezuela, Duterte’s Philippines, etc.) and virtually nonexistent in developed countries.  It is one of those phenomena that comes along in a big way about once a lifetime—like pandemics, depressions, or wars.  The last time that it existed as a major force in the world was in the 1930s, when most countries became populist.  Over the last year, it has again emerged as a major force.

 

Given the extent of it now, over the next year populism will certainly play a greater role in shaping economic policies.  In fact, we believe that  populism’s role in  shaping economic conditions will probably be more powerful than classic monetary and fiscal policies (as well as a big influence on fiscal policies).  It will also be important in driving international relations.  Exactly how important we can’t yet say.  We will learn a lot more over the next year or so as those populists now in office will signal how classically populist they will be and a number of elections will determine how many more populists enter office.

That said, at least according to Satyen Mehta a money manager at Neon Liberty Capital Management, despite Dalio's dire warnings, populism has historically resulted in massive and sustained equity rallies that have historically averaged over 150% over three years…a phenomenon that he attributes to populists creating short-term stimulus that supports growth even as the nations’ debt burdens swell.  Per Bloomberg:

If the last two decades of anti-establishment rule are any guide, the world may be on the brink of some monster stock rallies as it takes a turn toward populism.

 

A look at 10 of the 21st century’s most recognized populist leaders shows that in the three years after their election, local equities soared an average of 155 percent in dollar terms. And the rallies often continued as long as a decade after the vote.

 

"While conventional wisdom suggests investors should be wary of populist leaders, equity markets were actually much more resilient when their policies turned out to be more benign than initially feared," Mehta said.

Here is a just a small sample of some of the returns reviewed by Mehta after populist leaders took over in various countries around the world.

The pattern of outsize returns for countries run by populists has been seen from Brazil’s Luiz Inacio Lula da Silva to Russia’s Vladimir Putin, as well as in Poland, Egypt and India. Under leaders generally considered leftist, equities have done particularly well, producing 221 percent returns in three years. Right-wing heads of state saw 122 percent gains over the same period, according to data compiled by Bloomberg.

 

The numbers get a little trickier longer term, but for countries where there’s available data stock investors saw returns of 355 percent in the populist countries over five years and 442 percent 10 years down the road.

 

Of course, it should be noted that timing is everything and we suspect it was easier for Luiz Inácio Lula da Silva to preside over outsized equity returns in Brazil after taking office in 2003 after the tech bubble pretty much laid waste to equity markets around the world.  Trump, on the other hand, has taken office just as equities are trading at all time highs on pretty much any metric you may want to look at.

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Authored by William Jacobson via LegalInsurrection.com,

The price to be paid by conservatives on campus is a topic I have been covering frequently.

I discussed recently the issues at Cornell in For conservatives at Cornell University, high price for free speech, and more generally the atmosphere on many campuses in The new Cultural Revolution on Campuses

On May 1, 2017, I was a guest on the Lars Larson show, talking about the lessons of the smear attack on distinguished Cornell Chemistry Professor David B. Collum through a letter to the editor in The Cornell Sun signed by seven graduate students.

The letter attacking Prof. Collum, which I described in my interview with Lars as a “full frontal assault,” was addressed in my response in The Sun, Prof. David Collum, Chemistry, is owed an apology and a retraction.

My defense of Prof. Collum elicited a response in the Cornell Sun from Michaela Brangan, Cornell Graduate Students United (the student group pushing for unionization) administration liaison, On credulity and union politics: A response from a CGSU Officer on letter from Prof. Jacobson, law. Read the whole thing at the link, here’s an excerpt:

Drawing a line between Collum’s past acts related to the union and a letter to the editor regarding his published statements that reflect attitudes about other things is guesswork, at best. But Prof. Jacobson’s union retaliation narrative checks one big political box. It stokes conservatives’ fears that they are silenced and persecuted for their beliefs by vengeful “SJWs” (short for social justice warriors) on campuses, all part of a stealth left-wing plan to usher in tyranny. Press and others eager to bolster their confirmation biases took up Prof. Jacobson’s narrative hook, line and sinker. The initial claim of “payback” frames Prof. Jacobson’s entire analysis, pressing the “right” buttons — sneaky liberals! oppressive unions!  — and causing a minor media feeding frenzy. This distracts away from the issue of Prof. Collum’s public statements and whether opinions on his likely views regarding campus sexual misconduct and gender discrimination might be reasonably drawn by a student or faculty member.

 

That, of course, is the only relevant issue. I guess it isn’t bloody enough.

 

I won’t ask Prof. Jacobson — or Red State, or The Federalist — for an apology and retraction, as he demands for others’ opinions. Conflicts around free speech, grievance policies and sexual misconduct on campus are real and fraught as it is, and we all have to struggle through them somehow, together. They don’t need conspiratorial chimeras grafted onto them by professors, who should be taking the intellectual lead on campus, not stoking fear. It is unbecoming, and pollutes our shared discourse.

Oddly, the CGSU letter never addressed the evidence I raised in defense of Collum.

In my interview with Lars, I had a chance to explain the Cornell situation and how it fit into the larger issue of retaliation against those who speak out against the left or unions on campus.

After explaining how Collum was targeted due to his opposition to the unionization of graduate students, I moved on to the accusations made against him in the Cornell Sun:

“All of the sudden, a week or two ago, in the school newspaper, the Cornell Sun, which is a very good newspaper, they published this ferocious letter to the editor signed by seven students, either all or most of whom were union supporters, just ripping into this professor calling him a rape apologist, calling him misogynistic, calling him transphobic, calling him all the sort of names that on a modern campus can really jeopardize your job and your reputation…. It really was very unsettling I think for much of the campus with this attack on a prominent professor….

 

I think the point you’re bringing up is this is the risk you take when you are, I should mention, he is a conservative professor, he’s one of maybe a half dozen you can count on the entire campus who are openly conservative. And so it really goes to the question, if you are conservative, and if you speak out, even to colleagues, are you going to face some sort of retribution, and that’s the modern campus that we’re living in today….

 

To me the bigger issue is not that they criticized him for what he said about the unions, it is that lo and behold a couple of weeks later there’s this full frontal assault on him, on his reputation, on him as a person in the school newspaper ….

 

Even when you win the battle you might lose the argument. Because the message gets out there, if you’re going to speak out against the left wing, if you’re going to speak out against unionization, things like that, there’s going to be a price to pay, and that price to pay might be your reputation or it might be your job, and that’s the message.”

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CNN said Tuesday that is refusing to air a campaign ad from President Trump because the spot refers to the media as "fake news."

In response to the Donald J. Trump for President campaign’s accusations of ad censorship: http://pic.twitter.com/0Rbanpf0dn

— CNN Communications (@CNNPR) May 2, 2017

 

"The mainstream media is not fake news, and therefore the ad is false. Per our policy, it will be accepted only if that graphic is deleted. Those are the facts."

As The Hill reports, the ad, released by the Trump campaign on Monday, dismisses questions about whether the administration's first 100 days lived up to the president's promises on the campaign trail.

After ratting off a list of successes—including the confirmation of Supreme Court Justice Neil Gorsuch, authorization of the Keystone XL Pipeline and eliminated regulations—the ad blames the media for hiding those accomplishments.

 

"You wouldn't know that from watching the news," the narrator says as a group of cable news reporters—including CNN's Wolf Blitzer—appear on the screen.

The Trump campaign in a statement to reporters earlier Tuesday morning accused the network of stifling free speech.

“It is absolutely shameful to see the media blocking the positive message that President Trump is trying to share with the country. It's clear that CNN is trying to silence our voice and censor our free speech because it doesn't fit their narrative," Michael Glassner, the Trump campaign's executive director, said.

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Authored by Simon Black via SovereignMan.com,

By late 2014 I’d finally had enough.

After so many run-ins with the bitter incompetence and bureaucratic indignity of the banking system, I decided once and for all that I would start my own bank.

I probably should have had my head examined, but instead I called one of my attorneys to talk through the options.

Had I known then what I know now, I think I still would have made the same decision… but in total honesty I was completely unprepared for the torrential shit storm I was about to enter.

The deeper I went, the more overwhelming my discoveries of how shockingly inept, obsolete, and out of touch the industry is.

It’s one thing to read about it in the headlines. It’s quite another to experience it first hand as an insider.

Here’s a great example: you know how it seems commonplace these days to hear about banks getting hacked? Well, there’s a very good reason for that.

Every bank runs on something called “core banking software”, which is sort of a central financial database that keeps track of all accounts and transactions.

Anytime you deposit or withdraw funds, the core banking software updates its records.

And whenever you log in to your bank’s website to check your account balance, the server relies on the core banking software for that information.

Core banking software is the most critical component of any bank’s technological infrastructure.

Yet ironically, the software that many of the most established banks use was originally written in either Fortran or COBOL, both 60-year old programming languages that date back to the late 1950s.

Back then banks were very early adopters of technology and jumped on the chance to automate their core functions.

As technology improved, banks continually patched and updated their systems.

But they eventually ran into limitations in terms of how much they could modernize the software.

In the software industry, developers recognize this limitation.

That’s why from time to time they stop supporting obsolete versions of their applications and reengineer new versions with the latest technology.

But that didn’t happen across most of the banking sector. Instead, banks kept patching and upgrading outdated software.

Simply put, the most important functions in the banking system are powered by decades-old technology.

Perhaps nowhere is this more obvious than with domestic money transfers.

Within the domestic US banking system, most banks rely on the ACH payment network to send and receive financial transactions.

If your paycheck is direct deposited into your bank account, or mortgage payment automatically deducted, these typically use ACH.

What’s completely bewildering is that ACH payments typically take 48 hours to clear.

That’s completely insane given that any domestic bank transfer is simply an internal transfer from the sending bank’s account at the Federal Reserve to the receiving bank’s account at the Federal Reserve.

It’s utterly astonishing that in 2017 such a simple transaction actually takes two days, as if they have to send a satchel full of cash cross-country via the Pony Express.

But this is a reflection of the pitiful technology that underpins the banking system.

It doesn’t get any better internationally either.

If you’ve ever dealt with international financial transactions you may have heard of the SWIFT network.

SWIFT is a worldwide banking network that links allows financial institutions to send and receive messages about wire transfers and payments.

Anytime you send an international wire, it’s customary to enter the receiving bank’s “SWIFT code” as part of the wire details.

SWIFT is absolutely critical to global banking and handles billions of transactions and messages each year.

So you can imagine my surprise when I found out that SWIFT runs on Windows Vista an obsolete operating system that Microsoft no longer supports.

When my bank received its SWIFT code, we were told that we had to have a computer running Vista in the office in order to connect to SWIFT.

It was such an absurd exercise to find an obsolete computer running an obsolete operating system to connect to the supposedly most advanced and important international payment network in the world.

Unsurprisingly, SWIFT has been hacked numerous times, both by the NSA as well as private hackers who have stolen a great deal of money from their victims.

Last year a bunch of hackers famously penetrated the SWIFT network and stole over $100 million from the Bangladesh central bank.

And that was nowhere near an isolated incident.

This is the big hidden secret of banking: despite the shiny veneer of online banking, the institutions that literally control your money are run on outdated, inefficient, obsolete technology.

But this technology issue only scratches the surface of how pointless and anachronistic modern banking is. More on that tomorrow.

Do you have a Plan B?

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With Apple trading at all time highs (and with a quarter trillion in cash on the books), the market was wondering if AAPL can once again surprise to the upside as well as guide what it plans to do with its cash hoard.  It tried, but it couldn't quite get there.

Apple reported Q2 earnings which while beating on the bottom line, missed on revenue, and also missed on iPhone sales, as Apple sold 50.8 million iPhones, below the 51.4 million expected, and also down 0.8% from a year ago, and also missed on ASPs while Chinese revenues disappointed once again declining by 14% Y/Y.

Earnings of $2.10 were higher than the $2.01 expected, on revenue of $52.9 billion, which missed expectations of $53.4 BN expected, although still 4.9% higher than a year ago.

While sales grew across the globe as usual, revenue in China declined by 14% in the quarter, the 5th consecutive quarterly decline in a row.

The results in a nutshell:

• Q1 EPS: $2.10 Exp. $2.02
• Q1 Revenue: $52.9, Exp. $53.1Bn
• Gross margin: 38.9%, just above the Exp. 38.3%
• iPhone unit sales: 50.8 milion, Exp. 51.4 million. iPhone sales generated $33.2 billion in revenue, 63 % of total.
• iPhone average selling price: $655 , Exp. $666

Putting Apple's numbers in context: in Q1 2017 iPhone sales generated 63% of the company's total revenue, down from 69% last quarter but well above the 2.5% in Q1 2008.

Apple also provided the following guidance for its fiscal 2017 second quarter:

• revenue between $43.5 billion and $45.5 billion, Exp. $45.7BN
• gross margin between 37.5 percent and 38.5 percent, Exp. 38.3%
• operating expenses between $6.6 billion and $6.7 billion

Tim cook was predictably happy:

“We generated strong operating cash flow of $12.5 billion and returned over $10 billion to our investors in the March quarter,” said Luca Maestri, Apple’s CFO. “Given the strength of our business and our confidence in our future, we are happy to announce another $50 billion increase to our capital return program today.”

However, shareholders were less so and the stock was modestly lower after hours. Perhaps to assuage their pain, Apple also announced that its Board of Directors has authorized an increase of $50 billion to the Company’s program to return capital to shareholders and is extending the program timeframe by four quarters. Under the expanded program, Apple plans to spend a cumulative total of $300 billion by the end of March 2019.

The company also said that as part of the latest update to the program, the Board has increased its share repurchase authorization to $210 billion from the $175 billion level announced a year ago.

The result in chart format:

While Apple Net Income grew 4.9% Y/Y, a more troubling metric was the modest 0.8% decline in iPhone sales in Q2.

Q2 Revenue of $52.9 billion missed expectations of $53.1 billion.

Product sales: the biggest red flag, was the decline in iPhone sales.  Apple also announces it sold 8.9 million iPads in Q217, a 13% drop from the 10.3 million units in the year-ago quarter.  Apple also said it sold 4.2 million Macs in Q217, compared to 4.034 million units in the year ago quarter. This represents 4% year-over-year unit sales growth.

Regional breakdown: sales grew in every region expect China where they declined by 14%

 
Finally, while the company's record cash hoard grew once more, rising to $256 billion total, the cash number net of debt actually declined modestly to $158 billion. As a reminder, most of this cash remains locked outside of the US.

And, for now, shareholders are not impressed.

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Following last week's surprise builds in Gasoline and Distillates, API reported a bigger than expected crude draw of 4mm barrels (whioch will be the biggest since 2016 if it holds for DOE). Furthermore, RBOB jumped after gasoline (and distillates) inventories fell (against expectations of a modest build)

 

API

• Crude -4.158mm (-3.5mm exp) – biggest since 2016
• Cushing -215k
• Gasoline -1.93mm (+1mm exp)
• Distillates -436k

Inventory draws across the board…

 

And the reaction was a kneejerk higher – after an ugly day (thanks to comments from the Saudi crown prince) for WTI (6mo lows) and RBOB (8mo lows)…

 

Notably, Russian announced production cuts right before the data hit and stated that it favbored extending the OPEC production cut deal.

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Authored by Lance Roberts via RealInvestmentAdvice.com,

With April now behind us, investors now enter into the seasonally weak 6-month period of the year. It is also the annual “right of passage” as the debate over the old Wall Street axiom “Sell In May And Go Away,” rages. As I noted in last week’s Technical Update:

“As we wrap up the month of April, we now begin the march into the seasonally weaker period of the year. As noted by Nautilus Research, the markets tend to get choppy over the next couple of months.”

Just recently at the 2017 Economic & Investment Summit, Greg Morris made an interesting statement worth considering in today’s discussion:

“If you believe something that you learned from your parents, or teachers, when you were young and have never questioned; how many things about investing and finance do you believe today but have never questioned?”

It is from this point that I want to discuss the issue of “Sell In May.”

Let’s start with a basic assumption.

I am going to give you an opportunity to make an investment where 70% of the time you will win, but by the same token, 30% of the time you will lose. 

It’s a “no-brainer,” right?

So, you invest and immediately lose. In fact, you lose the next two times, as well. Unfortunately, you just happened to get all three instances, out of ten, where you lost money. Does it make the investment any less attractive? No. 

But this is exactly what happens to investors all the time. They read about some investment strategy, or discipline, that historically has had a very high success rate, so, they jump in. Of course, as luck would have it, the next year market dynamics change somewhat and the strategy doesn’t work. Since, whatever strategy is obviously flawed, they jump to the next “hot” trend from last year.

This “rotation” can be seen in the Callan Periodic Table Of Returns. Most investors tend to “buy” whatever was “hot” last year, but as you can see, it rarely stays that way for long.

Wash. Rinse. Repeat.

In most instances, the analysis of “Sell In May” typically uses too short of a timeframe looking back only to the beginning of the last secular “bull market” that begin in the early 1980’s. Even Nautilus’ analysis above, while excellent, only looks back at the last 20-years. In order to properly analyze the historical tendencies of the markets, particularly given the impact of Central Bank interventions in recent years, we need a more extensive data set.

Therefore, using the monthly data provided by Dr. Robert Shiller, let’s take a look at the seasonally strong versus weak periods of the year going back to 1900. The table below, which provides the basis for the rest of this missive, is the monthly return data from 1900-present.

Using the data above, let’s take a look at what we might expect for the month of May

Historically, May is the 4th WORST performing month for stocks with an average return of just 0.26%. However, it is the 3rd worst performing month on a median return basis of just 0.49%.

(Interesting note:  As you will notice in the table above and chart below, average returns are heavily skewed by outlier events. For example, while October is considered the “worst month” with an average return of -0.32%, the median return is actually a positive 0.39% which makes it just the 2nd  worst performing month of the year beating out February [the worst].)

As noted, May represents the beginning of the “seasonally weak” period for stocks. As the markets roll into the early summer months, May and June tend to be some of weakest months of the year along with September. This is where the old adage of “Sell In May” is derived from. Of course, while not every summer period has been a dud, history does show that being invested during summer months is a “hit or miss” bet at best.

Like October, May’s monthly average is skewed higher by 32.5% jump in 1933. However, in more recent years returns have been primarily contained, with only a couple of exceptions, within a +/- 5% return band as shown below.

The chart below depicts the number of positive and negative returns for the market by month. With a ratio of 54 losing months to 62 positive ones, there is a 46% chance that May will yield a negative return.

No Reason To Sell Just Yet

Based on the historical evidence it would certainly seem prudent to “bail” on the markets, right? Maybe not. The problem with statistical analysis is that we are measuring the historical odds of an event occurring in the near future. Like playing a hand of poker, the odds of drawing to an inside straight are astronomically high against success. However, it doesn’t mean that it can’t happen.

Currently, the study of current price action suggests that the markets will likely break out to new highs in the days ahead. Such action, should it occur, will continue to support the “bullish case” for equities for now. This is why, as I have reiterated in our weekly missive, that portfolio allocations should remain biased toward equities.  To wit:

“With the market on a short-term “buy signal,” deference should be given to the probability of a further market advance heading into May. With earnings season in full swing, there is a very likely probability that stocks can sustain their bullish bias for now.”

And again in Return Of The Bull…For Now

“Clearly, the bullish trend on both a daily and weekly basis remains intact. This keeps portfolio allocations on the long side for now.”

However, the “risk” to investors is not a continued rise in the markets, but the risk of a sharp decline. As discussed in “The Math Of Loss:”

The reason that portfolio risk management is so crucial is that it is not “missing the 10-best days” that is important, it is “missing the 10-worst days.” The chart below, from Greg Morris’ recent presentation, shows the comparison of $100 invested in the S&P 500 Index (log scale) and the return when adjusted for missing the 10 best and worst days.

Clearly, avoiding major drawdowns in the market is key to long-term investment success. If I am not spending the bulk of my time making up previous losses in my portfolio, I spend more time compounding my invested dollars towards my long term goals. As Greg notes in his presentation, the markets are only making new highs roughly 4% of the time. Spending a bulk of bull market cycle making up previous losses is hardly a successful investment strategy one can utilize.

Since our job, as investors, is to compound our investment over time, the REAL RISK is NOT MISSING UPSIDE in the markets, but CAPTURING DECLINES. The destruction of investment capital is far more damaging to long-term investment goals than simply missing a potential for rather limited gains at this very late juncture of the investment market cycle.

The chart below shows the gain of $10,000 invested since 1957 in the S&P 500 index during the seasonally strong period (November through April) as opposed to the seasonally weak period (May through October).

It is quite clear that there is little advantage to be gained by being aggressively allocated during the summer months. However, in reality, there are few individuals that can maintain a strict discipline of only investing during seasonally strong periods consistently. Also, time frames of when you start and when you need your capital for retirement make HUGE differences in actual performance.

That is why, for investors, while the data is certainly interesting, it yields little. For investors, market returns cannot be anticipated with any given degree of certainty from one day to the next. No one has that ability. What we do know, is that eventually, prices will take a turn for the worse and history shows that there will be little warning, fanfare or acknowledgment that something has changed.

As the trend reverses, it will initially be met with denial, followed by hope, and ultimately acknowledgment, but only well after the fact.

As shown in the chart below, we are currently on intermediate-term sell signal and overbought with a secondary sell signal approaching. Both are occurring from very high levels which suggests the current rally should likely be used for portfolio repositioning and rebalancing. However, such a statement does NOT mean “cashing out” of the market as the bull market trend remains intact. Maintain, appropriate portfolio “risk” exposure for now, but cash raised from rebalancing should remain on the sidelines until a better risk/reward opportunity presents itself.

With our portfolios invested at the current time, it makes little sense to focus on what could go right. You can readily find that case in the mainstream media which is biased by its needs for advertisers and ratings. However, by understanding the impact to portfolios when something goes “wrong” is inherently more important. If the market rises, terrific. It is when markets decline that we truly understand the “risk” that we take. A missed opportunity is easily replaced.  However, a willful disregard of “risk” will inherently lead to the destruction of the two most precious and finite assets that all investors possess – capital and time.

Just something to consider when the media tells you to ignore history and suggests “this time may be different.” 

That is usually just about the time when it isn’t.

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Macro data suddenly collapsing, Auto sales slumping, consumer spending rolling over, lending falling, and earnigs expectations limping lower… stocks flat into The Fed…

 

So this happened…

 

And car sales slumped (down over the last 2 years…)

 

Ahead of AAPL earnings and The Fed tomorrow, stocks were panic-bid into the close to ensure Nasdaq closed at a new high…

 

 

VIX briefly tried to push back to single-digits but drifted higher for most of the day… until teh close when iut was hti to ensure a green close for Nasdaq

The dismal auto sales data sent carmakers tumbling… even Tesla!!!

 

Banks dropped again (after a bounce) as break-up chatter continued…

 

Bonds rallied notably after yesterday's "odd" run back above 3.00% for 30Y (as VIX collapsed)…catching back down to stocks..

 

The entire Treasury complex rallied today pushing yields out to 7Y back below unch for the week…

 

The Dollar Index trod water yet again, coiling ahead of The Fed statement tomorrow…

 

 

Copper slipped today but remains higher on the week (despite weak China PMIs), Crude and Silver tumbled…

 

The Energy complex was a bloodbath today with WTI at 6-mo lows and RBOB at 8 mo lows…

 

Energy Stocks tumbled to the lowest since Nov 2nd – down 5 days in a row… (down 15% from its highs on 12/12/16)

 

Gold and silver were marginally lower today as Gold bounced off its 50-day moving-average…

 

Gold continues to outperform Silver – back to the Brexit plunge levels…

 

SLV – the Silver ETF – is now down 12 days in a row, the longest streak on record…

 

via http://ift.tt/2pCzMWY Tyler Durden

It’s been about one month since his latest public address and so today, at 4:15pm ET new “Bond King” Jeffrey Gundlach, CEO and CIO of DoubleLine Capital will host his latest free to the public webcast on the DoubleLine Opportunistic Credit Fund and the DoubleLine Income Solutions Fund.

The webcast will start at 4:15 pm Eastern/1:15 pm Pacific today (Tuesday May 2, 2017). Unlike recent webcasts, this one will be audio only and there will be no slideshow.

To register for the webcast, click on this link.

An archive of past Doubleline webcasts can be found here.

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