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06232016 June 23, 2016

Posted by easterntiger in economy, financial, markets, stocks.
Tags: , , , , , , , ,
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Current Positions  (No Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) –exit

F(bonds) – up to 75%; G (money market) – remainder

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Weekly Momentum Indicator (WMI) last 4 weeks, thru 6/23/16

(S&P100 compared to exactly 3 weeks before***)

-1.89, -13.58, 16.45, +19.5

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(Today from 2 Fridays ago; 2 Fri’s fm 4 Friday’s ago; 3 Fri’s fm 5 Friday’s ago; 4 Fri’s fm 6 Friday’s ago)

TSP Fund Proxies Year-To-Date

Top left – F fund/+4.04% YTD, Top right – I fund/+1.46% YTD

Bottom left – S fund/+2.87% YTD, Bottom right – C fund/+4.15% YTD

(press any image to expand – press ‘x’ button at top left to return)

From the Weekly Momentum Indicator on the S&P100, notice the TWO POINT difference in price from today from NINE DAYS ago!

‘The market is up/The market is down’ virtually means nothing when the market is crossing back and forth in the same area for weeks and months at a time.

The high’s made in May/June of 2015 have still not been broken. Year-to-date is still fluctuating between single-digit plus or minus gains or losses.

Today, as all week, the entire financial world is hovering around the outcome of the referendum on whether the United Kingdom will ‘BREXIT’ or ‘BREMAIN’ in the European Union.   The results are expected sometime tonight with an immediate reaction in the world equity/currency/bond markets tomorrow.  The immediate impact is expected to be fairly ‘huge’ given recent narrow ranges.  A ‘BREMAIN’ will be seen as a stabilizing influence on the Eurozone, resulting in a positive direction on many, if not all, markets worldwide.  A ‘BREXIT’ will be seen as a very negative signal.  Prices would then expected to show immediate and possibly substantial penetration into the RED zones, reflecting the instability that an exit from the European Union by the United Kingdom would mean.

While the UK only represents 3% of world GDP, the economic impact of an exit has been summarized by legendary investor/trader George Soros, as a consequence of a devaluation of the British Pound – “Too many believe that a vote to leave the EU will have no effect on their personal financial position,” he adds. “This is wishful thinking. It would have at least one very clear and immediate effect that will touch every household.”

Soros cites data from the Bank of England, the International Monetary Fund, and the Institute for Fiscal Studies stating that if Britain leaves the EU, the average U.K. household will lose £3,000 to £5,000 annually.

Underneath the surface, in the bigger picture ‘beyond the BREXIT’, and regardless of the short-term momentum after the vote, by next week, expectations are for some downward pressure on all the equity indexes.   Following the indications from the Federal Reserve over the past two weeks, of a plan to delay raising rates based upon conflicting data, the F fund has surged relative to a two-year low in benchmark (10-year treasury note) interest rates last week.  As a side note, these low interest rates have not translated to an increase in housing demand.  This is a significant sign of other dragging factors at work, possibly tightening consumer credit conditions, income stagnation, or consumer risk aversion. OTHER SIGNS OF ECONOMIC WEAKNESS are beginning to emerge.  Consumer spending and U. S. GDP is expected to lag in the lower end of recent ranges into next year.  Equity prices, already losing momentum from the loss of (1) Fed-sponsored Quantitative Easing (QE) since October ’14, (2) the peaking of New York Stock Exchange (NYSE) margin debt over a year ago (May ’15) and, finally, (3) the recent estimate of stock buybacks, from  JP Morgan Quant Marko Kolanovic, who announced that buybacks have dropped 40% ($250 billion) on a 12-month trailing basis. Share buybacks take approximately 6 quarters to execute so the recent drop will translate into roughly $40 billion less equity demand per quarter. In the chart below, notice how the S&P500/C Fund has remained in an upper range, IN SPITE OF the decline in buybacks.  This WILL be reconciled in the coming quarters.  The three elements are/were the primary sources of U. S. equity strength for the past 7 years.  Many other world indexes are already off in to negative ranges for the year.

us_buybacks

Risk continues to rise, even as prices appear to be unfazed.

 

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