Tag: news

Submitted by Lance Roberts via RealInvestmentAdvice.com,

80% Or Bust

Not surprisingly, the recent sharp reflexive rally has brought the bulls out in full force as noted by a recent comment on my post earlier this week on “4% From The Highs:”

“…by the time you get confirmation with the long term indicators above, you will miss out on 20 to 30% of the rally.”

It’s a fair point if you are a short-term trader looking to time the market. I’m not. As a long-term investor, and specifically as a manager of “other people’s money,” I am much more concerned with the specific inflection points where market dynamics change from a generally positive trend, to a negative one.

Yes, I will most definitely miss both the bottom and the top of markets. As shown in the chart below, the technical indications of a change in trend are slow to occur. However, I am only really concerned with capturing, or missing, the 80% between the tops and bottoms of major market cycles.

Further, the majority of the “Best-10” and “Worst-10” days are contained primarily within those 80% spans.

So, yes, I am absolutely going to be “wrong” at the tops of markets and at the bottoms while I await confirmation of a longer-term “trend” to emerge. For those that are inherently “bullish” who choose “hope” over what prices are “actually” doing, the historical outcomes have been brutal, to say the least.

As I have said before, my methodologies are my own. They are not new ideas. They are not innovative. They are simply the lessons I have been repeatedly taught over the last 30-years of managing money. If the markets reverse the current long-term sell signals, I will happily put a lot more money to work. Until then, I will wait rather than trying to “draw to an inside straight.” 

Think about it this way – if betting in the markets was really the way to build wealth, wouldn’t the vast majority of Americans be wealthy versus just the top 1%? Just a thought.

Mind The Gap

I have discussed the problems with earnings and earnings estimates in the past stating:

“In a 2010 study, by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year. Unfortunately, earnings only grew at 6% which, as we have discussed in the past, is the growth rate of the economy.”

“The McKenzie study also noted that on average “analysts’ forecasts have been almost 100% too high” which leads investors to make much more aggressive bets on the financial markets. “

My friend Salil Mehta from Statistical Ideas recently published a great piece on this issue.

“The gap between the 2016 forecasts and the YTD returns through January is 13% (8% target minus the -5% YTD). Annual returns have a nearly 20% standard deviation (or 19% if you only look from the end of January onward). So it is still plausible — though rather unlikely, with only a one in five probability — to reach the 8% target gain for 2016. (For statistics wonks, the test statistic decomposes the 13% gap to a ~9% move in addition to the typical 4.5% annualized return, and then factors in a 19% standard deviation.) Now that we are further into the year (mid-March), euphoria and complacency are back to extreme market top levels.

 

It’s also worth noting that strategists at major firms are consistently bullish, year after year. The sources of the most optimistic prognostications also don’t change. Sorted from most to least bullish, they are Federated Investors, JP Morgan, Prudential, Bank of America, and Columbia.”

“In the table below, two pieces of information averaged among the 10 firms listed above are presented:

1. The difference between the target and the January YTD returns.
2. The rest of the year returns.”

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“If these analyst forecasts were mostly in the right direction, you would expect a positive linear relationship between 1 and 2. Regrettably, there is a negative relationship instead. Never mind that the market continued its drop in February, even after the revised forecasts, and the rebound leaves the market still below many firm’s 2016, 2015, and even 2014 targets!

 

In other words, the larger the gap in January between the YTD returns and the year-end target, the more unlikely the chance the market will recover to the target by the year’s end.

 

Think about this: For 2016, the 13% gap noted earlier (after the standardization adjustment) is the largest gap among this data.”

As Salil concludes. “That’s not a good omen.”

It’s A Bunny

Since it is Easter, I will leave you with a story about a bunny.

James Paulsen, Chief Investment Strategist for Wells Capital Management, recently penned an excellent piece with respect to the ongoing “bull/bear” debate.

“The accompanying exhibit illustrates the U.S. stock market since WWII with recessions shown by the grey bars. In the last two expansions (during the 1990s and again in the 2000s), the stock market was uninterrupted by a bear market posting solid and steady returns until the economic recovery ended with a recession. So far, despite some volatility in 2011, this has also characterized the contemporary bull market. Without a bunny market in more than 20 years (as shown in Exhibit 1, the last bunny market was in the mid-1990s), most investors currently seem to accept that either the bull market will soon resume or we are nearing the end of this expansion. Since there has not been one in some time, few consider that stocks could simply be headed for another bunny market.”

“Most bunny markets occur in the latter part of an economic recovery. Stocks initially recover aggressively after a recession. However, as the recovery matures, cost-push pressures, inflation, and higher interest rates begin to pressure the bull market. This often resolves into a bunny market for the balance of many economic recoveries.“

I have modified his chart to notate both secular bull and bear market periods. During secular bear markets, as we most likely currently remain in, volatility swings and prices declines are substantially larger than during secular bull market periods. This elevates the risk of emotionally driven investment mistakes during periods of markedly higher volatility which leads to lower rates of investor returns longer term.

Just some things to think about.

via Zero Hedge http://ift.tt/21JqPWl Tyler Durden

As we tweeted at the open, between plunging durable goods, the slide in Services PMI and the tumble in Q1 GDP expectations, it's surprising it took this long to push the Dow green (BUT the S&P smash failed)… Happy Easter Christians…

 

Before we start, you are here…

 

This is what the day looked like across the asset classes… (dismal data sparked panic buying once the stock 'market' opened)…

 

The S&P and Dow desperately clung to unchanged as Small Caps ripped…

 

VIX was smashed back to a 14 handle to force the S&P green…BUT FAILED!

 

But, despite the surge effort, cash equity indices have a down week…

 

Valeant just can't keep a bounce, tumbling 7% on Sequoia shenanigans…

 

Treasury yields V-shaped along with everything else, but 30Y yields closed lower on the week…

 

Cable rallied today but remains down 2.2% on the week. The Dollar managed a small gain today for a 5-day winning streak – the longest streak since April 2015

 

Commodities were mixed today but mostly ended flat, though all down for the week…

 

Gold was double-monkey-hammered overnight before bouncing back….

 

Charts: Bloomberg

Bonus Chart: We thought stocks are meant to LEAD fundamentals… NOT LAG…

via Zero Hedge http://ift.tt/1RoOqsF Tyler Durden

Seriously!!

The Daily Mail reports, the president of Emory University has spoken to demonstrators who said they were frightened after someone wrote 'Trump 2016' in chalk around campus.

Students at the Atlanta school, which has an enrollment of more than 14,000 claim their 'safe space' was violated when the messages appeared on sidewalks and buildings.

 

Jim Wagner, president of the Atlanta university, wrote Tuesday that the students viewed the messages as intimidation, and they voiced 'genuine concern and pain' as a result.

 

He acted after student government wrote to him and slammed the university's response, prompting a meeting that led to protests.

 

Now administrators want to track down those responsible for the controversial markings.

Be warned the following "controversial markings" may offend…

 

Had enough… there is more!!

 

Emory's student newspaper, The Wheel, said Wagner outlined four steps that administrators plan to take in order to address the issues raised by the protesters who said they were in pain in a campus-wide email.

Wagner added that the Freedom of Expression Committee is meeting to address whether the person or people responsible for the chalking were in compliance with Emory’s policy.

 

He said that they would debate technical issues, such as whether or not the chalkings were done on an appropriate surface.

 

However, he believes that the broader concern motivating the protests had to do more with the ideas the chalkings stood for than how they were done.

 

The Wheel also reported that the students this week chanted, 'You are not listening! Come speak to us, we are in pain!' shortly before Wagner agreed to meet with them.

Poor babies. Social media responded…

'The crybaby students forfeited any expectation of an open discussion with their demands that any talk or chalk of Trump should be banished from their fantasyland.'

 

 'I have no idea how you kids will survive once you get out into the real world. People have different opinions than you. You need to grow up, and fast.'

 

One person also wrote: 'Within a year I am ashamed of both my undergraduate college (Yale) and my graduate university (Emory Law, '77).

 

'I am a liberal supporter of Clinton and Sanders (the former by a shade) and I want to shout at the thin-skinned crybabies on these campuses who are so obsessed with 'safe spaces' and so dismissive of free speech values: "GROW THE F*** UP !"

As we summed up recently, no matter where you go in life, someone will be there to offend you. Maybe it’s a joke you overheard on vacation, a spat at the office, or a difference of opinion with someone in line at the grocery store. Inevitably, someone will offend you and your values. If you cannot handle that without losing control of your emotions and reverting back to your “safe space” away from the harmful words of others, then you’re best to just stay put at home.

 

Remember, though: if people in the outside world scare you, people on the internet will downright terrify you. It’s probably best to just accept these harsh realities of life and go out into the world prepared to confront them wherever they may be waiting.

via Zero Hedge http://ift.tt/1UOXEAA Tyler Durden

Via Eurasianet,

While Georgia has been caught up recently in a major pipeline competition, with Russia, Azerbaijan and Iran all making a play for the action in this small, strategically located energy-transit hub, some men in the central Georgian village of Ruisi have been busy with a pipeline project of their own.

They lay a kilometer-long, underground pipeline to leach into the British Petroleum-operated, more than 800-kilometer-long Western Route Export Pipeline, which carries 100,000 barrels of oil daily from Azerbaijan’s Caspian Sea coast to Georgia’s Black Sea coast. Known as the Baku-Supsa pipeline for the terminals at both ends, the conduit was the first link in the country’s energy-export network.

The suspects built their own terminal in Ruisi, about a 20-minute drive west of Joseph Stalin’s birthplace, Gori, and created a parallel world of shipping, processing and retailing the Caspian Sea oil. A police video showed rows of large tanks used to collect the stolen oil. A makeshift tap was installed on the body of the Baku-Supsa pipeline to turn off and on the flow into its new, mini- branch.

From Ruisi, the oil was loaded onto trucks and camouflaged as vegetables – cabbage, to be exact, police said – and driven about 90 minutes east to the capital, Tbilisi. A makeshift refinery there then turned the cabbage-concealed crude into petroleum products.

Illegal tapping into the Baku-Supsa route, essentially a refurbished Soviet-era pipeline, has happened before. Poverty explains the motivation. Decent jobs in rural Georgia are few, if any; a fact illustrated by Tbilisi’s growing population.

But the latest crude caper seems the largest and the most elaborate operation so far. The heftier Baku-Tbilisi-Ceyhan pipeline, which carries oil from Azerbaijan through Georgia to Turkey, is less susceptible to such poaching.

Georgian villagers have meddled with other types of subterranean international conduits. In 2011, an elderly woman scavenging for copper with a spade sliced a major fiber-optic cable, leaving all of Armenia and part of Georgia without Internet access.

For their own operation, the two Ruisi oilmen, whose identities were kept confidential pending trial, could face up to 10 years in prison.

via Zero Hedge http://ift.tt/1T86PfD Tyler Durden

The name of Russell Clark and his Horseman Global hedge fund are well-known to regular readers: Clark is perhaps best known not only for having run a net short book since early 2012…

 

… but for being consistently profitable and successful during this period, a time when most of his “pedigee” peers have been underperforming the marjet and losing money hand over fist.

 

In fact, based on its size, one can probably argue that Horseman Global is the most successful hedge fund of 2016, if not of the entire decade.

His latest letter to clients can be found here.

The reason we bring Horseman Global up is not because his latest letter is out – we will share that once we have it – but because Russell Clark has released a fascinating white paper which seeks to answer the most important question of all: not if there is a bubble – by now everyone, even the central bankers, knows we are currently living inside the biggest asset bubble in history, but when does it burst.

This is what he says in a letter that looks at the curious relationship between peaks in the Nikkei ant the S&P500:

“One of the curious things over the last few years, is that despite the last two bubbles in markets being mainly US centred (dot com bubble and US housing) it has been the Japan based Nikkei that has peaked 3 to 6 months before the S&P 500.”

Here is his full letter:

One of the curious things over the last few years, is that despite the last two bubbles in markets being mainly US centred (dot com bubble and US housing) it has been the Japan based Nikkei that has peaked 3 to 6 months before the S&P 500. The Nikkei peaked in March of 2000, while the S&P 500 rolled lower in August of that year. The Nikkei peaked in June of 2007, while the S&P 500 peaked in October of that year.

The question is why should this be the case? Most investors would argue that the US economy is larger than Japan, and its stock markets are larger and more liquid. Theoretically, the US market should lead the Japanese markets.

The reality is that the US does not fund itself. The US has been running a fairly consistent current account deficit since the 1980s.

To fund this current account deficit the US has become the world’s biggest debtor. The US net international investment position was extremely positive for most of the post war period, but over the last decade has deteriorated dramatically.

 

The biggest supplier for credit to the US, particular relative to GDP has been Japan which has seen its net international investment position swell tremendously over the last decade.

My view is that the Japanese are the world’s biggest net savers and investors, and it is the movement of Japanese investments that cause the biggest moves in currencies and equities. If we convert the S&P into yen, we can see that Nikkei and S&P 500 tend to fall at the same time. That is the Nikkei and the S&P move together.

This seems to point to yen weakness being a good indicator of equity strength, as Japanese investors sell yen and seek higher returns elsewhere. Conversely yen strength is a sign that Japanese investors are repatriating assets and global markets are likely to be weak, at least in yen terms. If this is true, the most troubling aspect of such a theory is that Bank of International Settlement (“BIS”) put the case that yen is trading still close to all-time lows on a real trade weighted basis.

This line of thinking provides a very simple model for the performance of the Nikkei and S&P based on the value of the yen. If we assume that yen can rally to 100, we see that the Nikkei traded around 14000 the last time yen traded at 100. This model would assume the S&P would then trade somewhere between 1400 and 1600. I am very interested to see if this theory continues to work.

* * *

So are we.

And there you have it: if you want to know if the US stock bubble is about to burst, just keep an eye on the hilarious if ricketty debacle that Japan’s “stock market” have become, where only the daily interventions of the BOJ keep the whole house of cards from crashing down and wiping out Japan’s economy from the face of the earth. Because if the Nikkei is unable to “keep it up” despite a historic amount of debt monetizations, ETF and REIT purchases, and negtive rates by the BOJ, the S&P 500 will follow shortly.

 

via Zero Hedge http://ift.tt/1VKluyj Tyler Durden