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07182016 July 18, 2016

Posted by easterntiger in economy, financial, markets.
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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 7/18/16

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

+42.11, +69.03, +26.59, +0.78

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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 One Year Returns, as of 7/15/16

F fund/+5.77% YTD,  I fund/-10.00% YTD

S fund/-3.36% YTD,  C fund/+3.57% YTD

 

So, while everyone is expected to say ‘…wow – another new all-time-high…’, right after they just said, ‘…that BREXIT thing wasn’t so bad after all…’.  You should already know that the reality isn’t quite that simple.

Reality check – One Year Return – S&P500 +1.99%, Dow Industrials +2.33%

Events like BREXIT are not measured in their direct effects. They’re measured in all the varied knock-offs – such as the weaker Pound, destabilized Euro and the stronger Dollar, and how those flow through economies.

Italy Eyes $40bn Euro Bank Rescue As First BREXIT Domino Falls

An Italian government task force is watching events hour by hour pledging all steps necessary to ensure the stability of the banks. “Italy will do everything necessary to reassure people”, said Premier Matteo Renzi.

“This is the moment of truth that we’ve all been waiting for for a long time.  We just did not know that it would be BREXIT to let the elephant loose”, said a top Italian banker.

The index for Italian banks has fallen -30% since the British EU referendum on June 23, and is -61% lower than a year ago.

Failure of the Italian banking sector is not so threatening to our positions, or, for our direct interests. It’s the potential impact of the failure of Italy’s banking sector on the rest of the Italian economy that could act in a ripple effect fashion, from that banking crisis, which could, in turn, push Italy back into recession and, in a doomsday scenario, generate a Greek-type meltdown that Europe would find almost impossible to contain.

“The UK referendum hit an already vulnerable banking system in the eurozone. Italian banks are on the front burner, but the temperature is rising in Portugal,” Marc Chandler, the global head of currency strategy at Brown Brothers Harriman, wrote in a Monday note to clients.

Things aren’t looking super great going forward, amid higher oil prices and the overall sense of uncertainty in post-BREXIT Europe.

Barclays forecasts that growth will fall below 1% in 2016, while a Citi Research team led by Ronit Ghose noted that the negative growth effects from the BREXIT were likely to hit periphery countries — i.e. Portugal, Spain, Italy, and Greece — harder.

Where are the ‘all-time highs? Unfortunately, only in selected places where we can profit….

These are the percentage increases above the previous highs, with each ‘Y’.

Those with ‘N’ are indexes that are NOT at all-time highs!!!

Screen Shot 2016-07-17 at 11.19.45 PM

 

New All-Time Highs

S&P500, Dow Industrials, S&P MidCaps,

Russell 1000, S&P600 Small Caps, S&P400 MidCap Exchange Traded Fund

No New All-Time Highs

NASDAQ, New York Stock Exchange, Russell 2000 Small Caps,

London Financial Times Index, Wilshire 5000, Down Transportation Index,

American Exchange

New All-Time Low

10-Year Treasury Note, 30-Year Treasury Bond

F Fund – Two Years

AGG

 

C Fund – Two Years (higher YTD, but, with significant downside risk)

PEOPX

 

 

I Fund – Two Years

EFA

S Fund – Two Years (Also, higher YTD, but, with significant downside risk)

FSEMX

 

Lance Roberts of ‘Real Investment Advice’ points out some inconvenient facts.

“It is worth reminding you, that while the markets are moving higher and pushing new highs currently, it is doing so against a backdrop of weak fundamentals, high valuations, and deteriorating earnings.”

Of the current price levels, Blackrock CEO Larry Fink says, “If we don’t see better-than-anticipated corporate earnings I think the rally will be short-lived,” he added.

Considering that on a GAAP (accounting) basis, the S&P500 is currently generating about 90* in earnings, or equivalent to a 24x P/E multiple, it is hard to see how one can justify the move “fundamentally.”

* – currently at 86.44, and, that’s down from 105.96 last year at the peak.

Fink said extraordinary central bank asset purchases has been inflating stocks prices. “I don’t think we should be at new [stock] highs,” he said. “All the stock repurchases, you’re seeing this reduction in investable assets.”

Artificially boosting stock prices through convoluted liquidity schemes, devious machinations, backroom central banker deals, sending Bernanke to Japan, and helicopter money dropped on Wall Street only, has just exacerbated the wealth inequality permeating the world. The anger over this blatant pillaging by the .1% who rule the world is reflected in the chaos across Europe and the brewing civil war here in the U.S.

No wealth is being created because no productive investments are being made.

Here is a chart of earnings levels, clearly showing a quarter-over-quarter decline that began over a year ago.

Screen Shot 2016-07-17 at 10.01.32 PM

Let’s assess the progression closely…

  •   The Fed kept rates at ZERO for seven years.
  •   The Fed raised rates just ONCE in the last 10 years.
  •   The Fed spent over $3 trillion in QE.
  •   Total central bank printing totaled $20 trillion since 2008.

Let’s assess the most recent headlines…

The three largest banks in the US—Bank of America, JPMorgan Chase, and Wells Fargo—disclosed that the number of delinquent corporate loans increased by 67% in Q1.

  • JPMorgan’s delinquent corporate loans increased by 50% to $2.21 billion
  • Bank of America’s delinquent loans increased 32% to $1.6 billion
  • Wells Fargo’s delinquent loans increased by 64%, to $3.97 billion

US Industrial Production Declines For 10th Straight Month – Longest Non-Recessionary Streak In History

 

Retail Sales Jump On Downward Revisions, Hover At Recessionary Ledge

 

Empire Fed Unexpectedly Drops As New Orders Tumble, Labor Conditions Deteriorate

Don’t get caught up in the hype of a minor upward price advantage.

The memories of losses nearing 10%, twice in the past year, have faded from the presses.

These minor single-digit YTD gains will also fade quickly once the weight of the fundamentals begins to take it’s toll.

09252015 September 25, 2015

Posted by easterntiger in economy, financial, markets, stocks.
Tags: , , , , , , ,
add a comment

Current Positions  (Changes)

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

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

Weekly Momentum Indicator (WMI) last 4 weeks, thru 09/24/15

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

4.88, -17.54,  -1.76, -72.95

(Today from 3 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)

It’s now a month after the largest decline in 4 years. The dust has cleared.  Any doubts about the very first Fed action after the first correction in 4 years are now in the books.

In the chart below, the biggest question, before and after last week’s Fed meeting, is which way the ‘ascending wedge’ formation would resolve – breaking upward or downward.

Bulls were certain that this was a bullish ‘consolidation’. And, with no rate increase last week, they were confident of a rebound.  That confidence proved to be incorrect.

S&P50009242015

(click for a closeup, then, back button to return)

Also leading into last week’s Fed meeting, the ‘exposure index’ from the National Association of Active Investment Managers hovered in the range near one-year lows.  Since the Fed meeting, that exposure level is now lower than in the previous two weeks, and, is now at the low for the year.  Investment managers are not interested in increasing their exposure to stocks at this time.  Prices should continue to weaken near term. HOWEVER – prices in this upcoming quarter characteristically rise from August/September/October lows and into late November to mid-December highs.  This all-too-often phony ‘advance’ back to old highs meets the needs of fund managers who do not want a negative return in their portfolios for the year.  That justifies a bonus for them in January.  Don’t count on these advances holding up into the next quarter.  Any rise that does not exceed the highs for the year, established in May and June, depending on the index, should simply be classified as ‘noise’.  Only an advance that exceeds those May/June highs should be taken seriously.  That stronger advance, past highs of the year, is highly unlikely.

In the past week, a measurement of buying interest in the various S&P components/indexes has indicated a similar pattern of low and declining buying interest, if not, outright selling interest.

S&P-PBIThe only sector with any increase in buying interest is the S&P Utility sector.  This is a bearish indication, one of a search for safety, protection and avoidance of risk.  This is a reiteration of the expectation for a further decline, or increasing risk, in stock indexes.

On Wednesday, stocks worldwide began the morning with another beating after a scandal at Volkswagen (deliberately altering emissions results on up to 11 million cars).  The impact of this scandal is far-reaching, threatening the company itself, the health of German economy, and, with ripple effects to all of Volkswagen’s inter-connected supply chains world-wide.

The expected increase in the ‘flight to quality’ trade, of increasing interest in bonds, did not fully materialize, even as stocks broke down last month.  The one obstacle to the increases that should have occurred in our F fund positions were due to the flooding of the bond market of our bonds, previously purchased from us, by the Chinese central banks, at the very time that the demand for our bonds increased, and, during the times of highest overall risk.  These high risk conditions are normally the times when bond prices rise fastest.  You can’t blame them for adding their supplies to the market (dumping!) when they knew that the demand was also present.  Everyone has to strike while the iron is hot.  If not for that event, our F fund would have received a higher rate of increase, due to the rush of money out of stocks.

TreasuryNote(click for a closeup, then, back button to return)

Therefore, I am increasing my stake in the F fund, until this bond price trend reaches a peak, or, until stocks manage to bottom or regain their footing, due to increases in exposure by investment managers, or, the strengthening in the S&P sectors buying interest.

In the grander scheme, I noticed the emergence of a pattern that has only occurred 3 other times in the past 15 years.   In the previous 3 instances, stocks continued to decline by (1) 40% from the 2000 highs, (2) 53% from the 2007 highs, and (3) 20% from the 2011 highs.  So far, we have only declined by 10%.  It is highly likely that we are only halfway, or less, down to our eventual bottom, toward -20%, or more, from the highs of the year.

$SPXQtrly(click for a closeup, then, back button to return)

Additionally, a momentum measure called ‘relative strength index’ has fallen below a critical level, one that has only been reached, on a decline, for now only the 3rd time in 15 years.  If the current decline continues into October, we will be into our 6th quarter, moving beyond 20 months, within a narrow, ‘topping’ range.  This will increase the likelihood of this meeting the classification of a major top, and increasing the likelihood of a significant decline within the next 6-8 quarters.