For the first time in a long time the markets did not go up for the week. The Dow Jones Industrial Average lost 1.8%, the S&P 500 dropped 2.6%, and the NASADAQ finished down 2.75%. The loss broke an eight week winning streak for the Dow and the NASDAQ.
Nevertheless, all the major indices finished the month of April up between 1.5% and 2.5%, and all three averages have closed positive 12 out of the last 14 months. It is a rare through market history that we have had successive monthly positive returns like the ones just experienced.
According to “Stockmarket Cycles,” the Dow has risen on 41 of the past 55 trading days. They note that such a sequence has occurred only three times in the last 70 years. Going forward it would seem unusual for the current uptrend to continue. So what does the future hold? According to the Fed’s FOMC announcement they were a bit more upbeat about the economy but said they will continue to keep interest rates low for an extended period of time. That made traders happy from the major banks that are borrowing money for virtually free and giving it to their trading desks to drive up the markets and line their own balance sheets. Additionally the Investors Intelligence Sentiment Index is at 53.3% bullish, and an extremely low 17.4% bearish. That’s the lowest level of bearishness since 1987.
It is imperative to remember that market sentiment is a contrary indicator. A high level of optimism was what was happening at market tops in 2000 and 2007. When the majority become too optimistic it is not a positive sign, but instead a warning sign. When virtually no one is bearish anymore that is usually when trouble breaks out. Conversely if everyone is bullish, who is left to buy? The greater fool theory hasn’t gone away.
Then where will trouble come from? It would seem strange that Greece would suddenly be the black swan to hit markets when it’s been in the news for months. It’s even stranger that the downgrades from the rating agencies of Greece, Portugal, and Spain’s sovereign debt would cause such a panic as it did this past week. I am surprised investors ascribe to anything that the rating agencies have to say about anything. Haven’t investors been paying attention to the bubble brewing in global sovereign debt for a while now? It is amazing that we are attempting to solve the debt crisis by increasing debt. What can possibly go wrong with that solution?
Perhaps the trouble will come from the financial reform bill rolling through congress. Maybe they will finally force major banks / brokerage firms to apply the “Fiduciary versus Suitable” standard to their advice going forward and enact the “Volker Rule” which would force a separation of traditional banking from investment banking. There was some interesting testimony on display this week from several members of Goldman Sachs to that end where they displayed a lack of fiduciary standard towards their clients. Also the recap of earnings from Goldman’s traditional banking profits versus investment profits was telling. Not much lending going on over there to help small businesses create jobs. Oh that’s right – that’s not what they do.
The next weekly pattern is that the ‘monthly strength period’ which will run through next week. It is the time that a tremendous amount of retirement money flows into the markets from employee and employer contributions. One final note is that the “Sell In May and go away” historical adage now comes into play. The long term track record of using May as an exit signal and not reentering the markets until November, takes effect on Monday. While this tendency has a great track record, it should be noted the market does not own a calendar.
It is important to use a sell discipline and tight stop losses at this time. Bears expect a double-dip recession now that government stimulus efforts are being removed and inventories have returned to normal. Bulls obviously feel that the coast is clear. I frankly am worried that a new problem will develop and knock the market down a notch. This oil problem off the Gulf of Mexico and the administrations halt of new drilling could be a catalyst. Be careful of the devil you know but be looking for the devil you don’t know, as that is the one that usually gets you.
Friday, April 30, 2010
Friday, April 23, 2010
Champagne on Ice
Markets were up 2% across the board this past week. Earnings have been great on easy comparisons. New and existing home sales skyrocketed last month and are at levels not seen in decades. Investor fear is nonexistent.
The Dow Jones Industrials and the NASDAQ have been up eight weeks in a row and up 10 of the last 11 weeks. Money seems to be coming into the market in waves from the sidelines. Is this an all clear signal? Certainly not! At least not from the way valuations and sentiment appear.
The bull vs. bear’s survey of market newsletters is showing a frothy picture. Bulls exceed bears by 36 percent, according to Investors Intelligence. The last time this sentiment indicator was this extended was in January, just before the NASDAQ corrected more than 9%.
The VIX Index that measures investor fear is currently at levels only seen at market tops. The Producer Price Index, which measures inflation at the producer level, was up 0.7% in March, which annualizes out to over 8% annually. Friday it was reported that Durable Goods Orders declined 1.3% in March resulting in the first drop in four months. For those watching at home, those numbers are not healthy.
Yet the market is the final arbitrator of all information and for now it continues onward and upward. Thursday the markets were down significantly only to reverse late in the day and close slightly positive. Days with that kind of market action are called “reversal days” and they usually indicate further follow through from the day’s end direction, and Friday the market did not disappoint as the S&P 500 closed up at levels not seen since September 2008. The NASDAQ is now back to levels held in May 2008.
Next week 152 of the S&P 500 members will report their quarterly results. It will be the busiest week for earnings. According to Thomson Reuters, on average S&P 500 revenue is expected to be up 10% year-over-year while operating earnings are on track to increase 39%. However average stock prices have moved significantly higher than that than the first quarter of last year. The big question remains, have these better earnings already been priced into current valuations? Certainly not by the markets action over the last several weeks, but we invest for the future and time will tell. It’s definitely a time for caution not exuberance.
Next week the Fed meets and we shall be on watch for any change in policy regarding interest rates. I doubt they raise rates, but they may signal a plan for the removal of their long standing accommodative policy of free money. Next week also ends the stimulus for housing with the removal of the tax credit for home purchases for qualified buyers. How much of an effect that has on the housing market will be watched very closely by investors. If the housing market is unable to stand on its own, I think a correction in the stock market will also be forthcoming. The problems in Europe remain and are too lengthy to list.
Stock action seems to be forecasting a huge rebound for the overall economy. A V-shaped recovery would be the perfect outcome after a near global depression. While I am optimistic – I would leave the champagne on ice for now.
The Dow Jones Industrials and the NASDAQ have been up eight weeks in a row and up 10 of the last 11 weeks. Money seems to be coming into the market in waves from the sidelines. Is this an all clear signal? Certainly not! At least not from the way valuations and sentiment appear.
The bull vs. bear’s survey of market newsletters is showing a frothy picture. Bulls exceed bears by 36 percent, according to Investors Intelligence. The last time this sentiment indicator was this extended was in January, just before the NASDAQ corrected more than 9%.
The VIX Index that measures investor fear is currently at levels only seen at market tops. The Producer Price Index, which measures inflation at the producer level, was up 0.7% in March, which annualizes out to over 8% annually. Friday it was reported that Durable Goods Orders declined 1.3% in March resulting in the first drop in four months. For those watching at home, those numbers are not healthy.
Yet the market is the final arbitrator of all information and for now it continues onward and upward. Thursday the markets were down significantly only to reverse late in the day and close slightly positive. Days with that kind of market action are called “reversal days” and they usually indicate further follow through from the day’s end direction, and Friday the market did not disappoint as the S&P 500 closed up at levels not seen since September 2008. The NASDAQ is now back to levels held in May 2008.
Next week 152 of the S&P 500 members will report their quarterly results. It will be the busiest week for earnings. According to Thomson Reuters, on average S&P 500 revenue is expected to be up 10% year-over-year while operating earnings are on track to increase 39%. However average stock prices have moved significantly higher than that than the first quarter of last year. The big question remains, have these better earnings already been priced into current valuations? Certainly not by the markets action over the last several weeks, but we invest for the future and time will tell. It’s definitely a time for caution not exuberance.
Next week the Fed meets and we shall be on watch for any change in policy regarding interest rates. I doubt they raise rates, but they may signal a plan for the removal of their long standing accommodative policy of free money. Next week also ends the stimulus for housing with the removal of the tax credit for home purchases for qualified buyers. How much of an effect that has on the housing market will be watched very closely by investors. If the housing market is unable to stand on its own, I think a correction in the stock market will also be forthcoming. The problems in Europe remain and are too lengthy to list.
Stock action seems to be forecasting a huge rebound for the overall economy. A V-shaped recovery would be the perfect outcome after a near global depression. While I am optimistic – I would leave the champagne on ice for now.
Tuesday, April 20, 2010
Everything’s Hunky-Dory
The one day mini correction on high volume last Friday has passed. Just like Dubai, Greece, and the great recession before it, the alleged Goldman Sachs scandal seems to have already passed. The market continues its onward and upward trajectory with a V- shaped recovery off the bottom from last March 2009. Everything’s hunky- dory, right?
If you examine the VIX Index, also known as the Fear Index, it seems that complacency is everywhere. The VIX has been plunging as the year old rally has continued non-stop. It now stands at an incredibly low level of investor fear, or conversely a high level of investor optimism, given the overall state of the economy. We are currently at levels that have only been seen at market peaks. When the majority of investors feel that there is nothing to fear – that is precisely when fear should be the greatest.
Another method of measuring investor sentiment is the bull / bear ratios. The American Association of Individual Investors, showed bullishness at 48.5%. Usually it is strong contrary indicator when bullishness reaches 50% to 55%. So we are in the warning zone. The Consensus survey measures sentiment of brokerage firm analysts and independent advisors. Its readings are now 75% bullish. The last time it reached these levels was at the market peak back in October, 2007.
A further fundamental way to value the stock market is by evaluating the current dividend yield for the S&P 500. The market’s recent yield was 1.9%. The last time the dividend yield was this low was in December 2007, at the start of the great recession. Historically the dividend yield for the S&P 500 averages 3%. Since dividend yield accounts for as much as one third to one half of the stock markets total return over the long term, a higher dividend yield usually means healthy market returns going forward. The current paltry dividend yield does not bode well for superior returns going forward.
Yet the market continues higher. The rare down days are usually accompanied by higher volume. Nevertheless the multiple up days on low volume continues. The S&P 500 has been up eight of the last nine days. The NASDAQ has been up nine of the past 10 weeks.
Earnings thus far have been very good, but the current stock prices of most of the companies that have reported earnings are up even more than the earnings or revenue growth reported. It may turn out that stocks have already accounted for the better than expected earnings growth. At some point the markets will be forward looking again.
The future has two potential outcomes from my vantage point. One, is the economy is going to have a strong recovery – that is what the stock market is telling us with its V- shaped bounce off the bottom. If this happens, the excess government stimulus, to the tune of trillions of dollars globally, will have to be quickly removed to protect against inflation. Look at commodity prices over the last year – namely look at the price of gas at the pump and anyone can readily understand what I am saying. This will cause interest rates to rise very quickly. That will be good for savers and seniors but bad for everyone else. Interest rate represents the cost of money. As the cost of money goes up, earnings and growth go down.
The second potential outcome is that the economy is not nearly as strong as the stock market has been flashing. That is what leaders such as Ben Bernanke and the Fed have been saying. If this is the case, the outcome will result in a correction for the markets. How far and how fast remain to be seen. It really depends on how weak the economy remains. Job growth and housing appreciation are still nonexistent.
The other question for my two potential outcomes is when? When would a correction start? That answer is also elusive. There are many technical indicators to go along with the fundamental analysis stated above that demonstrate an overbought condition for the markets. The zero interest rate policy that is currently in place is fueling the markets and it could last a while longer. However the sooner the correction happens, the less detrimental it will be to buy and hold portfolios.
What should an investor do today? Be very cautious. These long term winning streaks for the stock market are very rare and usually there is an adjustment that follows. Use stop losses as a floor beneath today’s prices to protect your capital. These stop losses could be placed directly on the exchanges or mental notes of prices which must be executed when breached.
If you examine the VIX Index, also known as the Fear Index, it seems that complacency is everywhere. The VIX has been plunging as the year old rally has continued non-stop. It now stands at an incredibly low level of investor fear, or conversely a high level of investor optimism, given the overall state of the economy. We are currently at levels that have only been seen at market peaks. When the majority of investors feel that there is nothing to fear – that is precisely when fear should be the greatest.
Another method of measuring investor sentiment is the bull / bear ratios. The American Association of Individual Investors, showed bullishness at 48.5%. Usually it is strong contrary indicator when bullishness reaches 50% to 55%. So we are in the warning zone. The Consensus survey measures sentiment of brokerage firm analysts and independent advisors. Its readings are now 75% bullish. The last time it reached these levels was at the market peak back in October, 2007.
A further fundamental way to value the stock market is by evaluating the current dividend yield for the S&P 500. The market’s recent yield was 1.9%. The last time the dividend yield was this low was in December 2007, at the start of the great recession. Historically the dividend yield for the S&P 500 averages 3%. Since dividend yield accounts for as much as one third to one half of the stock markets total return over the long term, a higher dividend yield usually means healthy market returns going forward. The current paltry dividend yield does not bode well for superior returns going forward.
Yet the market continues higher. The rare down days are usually accompanied by higher volume. Nevertheless the multiple up days on low volume continues. The S&P 500 has been up eight of the last nine days. The NASDAQ has been up nine of the past 10 weeks.
Earnings thus far have been very good, but the current stock prices of most of the companies that have reported earnings are up even more than the earnings or revenue growth reported. It may turn out that stocks have already accounted for the better than expected earnings growth. At some point the markets will be forward looking again.
The future has two potential outcomes from my vantage point. One, is the economy is going to have a strong recovery – that is what the stock market is telling us with its V- shaped bounce off the bottom. If this happens, the excess government stimulus, to the tune of trillions of dollars globally, will have to be quickly removed to protect against inflation. Look at commodity prices over the last year – namely look at the price of gas at the pump and anyone can readily understand what I am saying. This will cause interest rates to rise very quickly. That will be good for savers and seniors but bad for everyone else. Interest rate represents the cost of money. As the cost of money goes up, earnings and growth go down.
The second potential outcome is that the economy is not nearly as strong as the stock market has been flashing. That is what leaders such as Ben Bernanke and the Fed have been saying. If this is the case, the outcome will result in a correction for the markets. How far and how fast remain to be seen. It really depends on how weak the economy remains. Job growth and housing appreciation are still nonexistent.
The other question for my two potential outcomes is when? When would a correction start? That answer is also elusive. There are many technical indicators to go along with the fundamental analysis stated above that demonstrate an overbought condition for the markets. The zero interest rate policy that is currently in place is fueling the markets and it could last a while longer. However the sooner the correction happens, the less detrimental it will be to buy and hold portfolios.
What should an investor do today? Be very cautious. These long term winning streaks for the stock market are very rare and usually there is an adjustment that follows. Use stop losses as a floor beneath today’s prices to protect your capital. These stop losses could be placed directly on the exchanges or mental notes of prices which must be executed when breached.
Friday, April 16, 2010
Bad Ending for a Strong Week
The market continued its strong rally this week, albeit on tepid volume. Prior to Friday, the S&P 500 and the NASDAQ had been up 12 of the last 14 trading days. The Dow and NASDAQ have also been up nine of the last 10 weeks! Pretty impressive! So far this year the market has finished up or positive for the day 64% of the time. Historically that number is closer to 50%. This is akin to a coin toss -50 / 50. Does that mean that there will be some reversion to the mean or are things different this time?
As the market continued its climb higher, the volume continues to weaken. That is not the usual pattern of conviction for a market setting consecutive 52 week highs – week after week. It leads me to believe that some form of extreme manipulation is taking place. It is statistically impossible for a market to put in so many new highs on such low volume without something being amiss.
If one examines the history of the Dow of which we have more than 100 years of data, you would find that at any given point in history, the markets trended higher on higher volume. Especially if it was putting in a series of new highs.
Now we have allegations of fraud against Goldman Sachs. Banking has been the business to be in since the bailouts. The Feds are providing banks with virtually free money and instead of lending this money out, they are simply pumping up the markets, setting up for another monumental correction. Or they are buying longer dated Treasury bonds, further out the yield curve and keeping the spread.
The largest six American banks now have assets that are equal to 63% of U.S. GDP; let that figure sink in. The Top 6 banks are also involved in over 80% of the derivative trades and make up a high percentage of the daily volume of activity on the stock exchanges. Weren’t banks created to lend money and help business grow? So why are they using this money to trade the markets?
Overall American business is still terribly slow but inventories have been depleted to the point that shortages are occurring. Statistics show that revenues and earnings are up dramatically from 2009, but are still off, for most industries, about 30% from the peak. This year over year growth data is being spun by focusing on the one year data and conveniently ignoring the fact that most business are still way down.
The National Federation of Independent Businesses (NFIB) issued its March survey Tuesday morning. Optimism in the small business community fell again. It dropped to a nine month low of 86.8. The last time it was at this level was April of 2009. Small businesses produce more than half the GDP and provide nearly 70% of the private sector jobs. Usually we see small businesses leading the way out of recessions since they’re the first ones to see the consumer come back, but what’s happened this time is the consumer still hasn’t come back.
The bottom line is this: outside of banking, no one is all that busy and prices of materials are literally skyrocketing. That smells like stagflation to me. Anyone who tells me that there is no inflation on the horizon is probably not paying that close attention and could be in for a shock.
The S&P 500 broke above the 1,200 threshold again this week. Twice for that matter – once up and then down again on Friday. It may be worth noting that the first time the S&P pierced this milestone was back in mid-2005. The quarterly trailing EPS for the market was $75 then. If we take the consensus estimate for Q1 ($18) and tack on the prior three quarters from last year, then the trailing EPS as of now is less than $65. So what we now have is a market that is overvalued by at least 15%, based on the profit fundamentals from 2005 when we had a stronger, more predictable economy.
So the question is, when the music stops, will you have a chair to sit on? The market won’t go on like this forever. We are overdue for a meaningful correction. Maybe it started today – maybe it is still a few months out. Is your portfolio properly prepared? Do you have an exit strategy?
Ask yourself this, do you want to be emotionally satisfied or financially sound? As far as the indexes are concerned, the danger out there is that of nobody seems to believe this market can ever go down. That thinking is dangerous. Markets can fall faster than they go up. We witnessed a preview of that on Friday, when it dropped quickly accompanied by high volume. In the end it’s not what you make, but rather what you keep that counts.
As the market continued its climb higher, the volume continues to weaken. That is not the usual pattern of conviction for a market setting consecutive 52 week highs – week after week. It leads me to believe that some form of extreme manipulation is taking place. It is statistically impossible for a market to put in so many new highs on such low volume without something being amiss.
If one examines the history of the Dow of which we have more than 100 years of data, you would find that at any given point in history, the markets trended higher on higher volume. Especially if it was putting in a series of new highs.
Now we have allegations of fraud against Goldman Sachs. Banking has been the business to be in since the bailouts. The Feds are providing banks with virtually free money and instead of lending this money out, they are simply pumping up the markets, setting up for another monumental correction. Or they are buying longer dated Treasury bonds, further out the yield curve and keeping the spread.
The largest six American banks now have assets that are equal to 63% of U.S. GDP; let that figure sink in. The Top 6 banks are also involved in over 80% of the derivative trades and make up a high percentage of the daily volume of activity on the stock exchanges. Weren’t banks created to lend money and help business grow? So why are they using this money to trade the markets?
Overall American business is still terribly slow but inventories have been depleted to the point that shortages are occurring. Statistics show that revenues and earnings are up dramatically from 2009, but are still off, for most industries, about 30% from the peak. This year over year growth data is being spun by focusing on the one year data and conveniently ignoring the fact that most business are still way down.
The National Federation of Independent Businesses (NFIB) issued its March survey Tuesday morning. Optimism in the small business community fell again. It dropped to a nine month low of 86.8. The last time it was at this level was April of 2009. Small businesses produce more than half the GDP and provide nearly 70% of the private sector jobs. Usually we see small businesses leading the way out of recessions since they’re the first ones to see the consumer come back, but what’s happened this time is the consumer still hasn’t come back.
The bottom line is this: outside of banking, no one is all that busy and prices of materials are literally skyrocketing. That smells like stagflation to me. Anyone who tells me that there is no inflation on the horizon is probably not paying that close attention and could be in for a shock.
The S&P 500 broke above the 1,200 threshold again this week. Twice for that matter – once up and then down again on Friday. It may be worth noting that the first time the S&P pierced this milestone was back in mid-2005. The quarterly trailing EPS for the market was $75 then. If we take the consensus estimate for Q1 ($18) and tack on the prior three quarters from last year, then the trailing EPS as of now is less than $65. So what we now have is a market that is overvalued by at least 15%, based on the profit fundamentals from 2005 when we had a stronger, more predictable economy.
So the question is, when the music stops, will you have a chair to sit on? The market won’t go on like this forever. We are overdue for a meaningful correction. Maybe it started today – maybe it is still a few months out. Is your portfolio properly prepared? Do you have an exit strategy?
Ask yourself this, do you want to be emotionally satisfied or financially sound? As far as the indexes are concerned, the danger out there is that of nobody seems to believe this market can ever go down. That thinking is dangerous. Markets can fall faster than they go up. We witnessed a preview of that on Friday, when it dropped quickly accompanied by high volume. In the end it’s not what you make, but rather what you keep that counts.
Goldman Sachs Cheated?
Why does Main Street not trust Wall Street? With reports like the one coming out about Goldman Sachs today, it becomes easy to understand. Allegedly, John Paulson’s multibillion hedge fund Paulson & Company with Goldman Sachs, put together a Collateralized Debt Obligation (CDO) pool of mortgages and sold that pool to the unsuspecting public.
Paulson then, allegedly, shorted that CDO on behalf of his own account or the account of Goldman Sachs. As an analogy, Pete Rose is banned from baseball and the Hall of Fame for life because he bet on baseball games that involved the Cincinnati Reds team that he was managing at that time. Rose could see the temperament of his players that day and he alone had control of the batting order and who would come in for relief pitching. Goldman handpicked the investments in this pool – sold it off to the unsuspecting public and then shorted that pool. Sounds very similar – but will the punishment be comparable? Somehow I doubt it.
Goldman’s stock is off more than 15% today – big deal. Does anyone really believe this is an isolated incident? Probably the gullible! I had heard rumors months ago that Goldman had put deals together for the country of Greece for them to demonstrate a stronger financial position to the European Union (EU). The rumor further indicated that Goldman afterwards placed short positions on Greece with the knowledge of already having looked at their books so to speak. Nothing ever came of that one. If that has any validity, it would have been another easy way to make money for the company.
Time will tell what comes out of these new revelations, but this will do nothing to instill confidence in the investing public that Wall Street is attempting to take advantage of Main Street on a wide spread basis. It was Thomas Jefferson who said, “Banks are more dangerous to the liberties of the people than the standing armies.” This helps prove Mr. Jefferson’s point! It is no wonder that the trading volume has been anemic on the exchanges. Much of the public has already had enough!
Paulson then, allegedly, shorted that CDO on behalf of his own account or the account of Goldman Sachs. As an analogy, Pete Rose is banned from baseball and the Hall of Fame for life because he bet on baseball games that involved the Cincinnati Reds team that he was managing at that time. Rose could see the temperament of his players that day and he alone had control of the batting order and who would come in for relief pitching. Goldman handpicked the investments in this pool – sold it off to the unsuspecting public and then shorted that pool. Sounds very similar – but will the punishment be comparable? Somehow I doubt it.
Goldman’s stock is off more than 15% today – big deal. Does anyone really believe this is an isolated incident? Probably the gullible! I had heard rumors months ago that Goldman had put deals together for the country of Greece for them to demonstrate a stronger financial position to the European Union (EU). The rumor further indicated that Goldman afterwards placed short positions on Greece with the knowledge of already having looked at their books so to speak. Nothing ever came of that one. If that has any validity, it would have been another easy way to make money for the company.
Time will tell what comes out of these new revelations, but this will do nothing to instill confidence in the investing public that Wall Street is attempting to take advantage of Main Street on a wide spread basis. It was Thomas Jefferson who said, “Banks are more dangerous to the liberties of the people than the standing armies.” This helps prove Mr. Jefferson’s point! It is no wonder that the trading volume has been anemic on the exchanges. Much of the public has already had enough!
Friday, April 9, 2010
Bullishness Continues
The market continues to rise as the Dow was up ¾ of 1%, the S&P 500 up 1.5%, and the NASDAQ up over 2% this past week. However, the latest Investors Intelligence poll has the bulls at 48.9%, while the ranks of the bears have slipped further to 18.9%. Bullish sentiment is now up in 7 of the past 8 weeks and bearish sentiment is down for the fourth week in a row. Al of this occurring as the major market indices have traded higher eight of the last nine weeks. We are approaching extreme levels.
Tax Day is Thursday, a dreaded deadline for millions of Americans. However, for nearly half of U.S. households it's simply somebody else's problem. About 47 percent of Americans will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions, and exemptions, to eliminate their liability.
The result is a system that allows almost half the country to not have to pay for programs that benefit everyone, including national defense, public safety, infrastructure and education. Conversely, the top 10 percent of earners pay about 73 percent of the total income taxes collected by the federal government. While the bottom 40 percent of US households make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment. Meaning we have half the people getting something for nothing. Not a bad deal for them.
Consumer credit slid $11.5 billion in February. Now declining 12 of the past 13 months. The year over year trend is running at -4.0%. Less credit is available to start business, buy homes, and create jobs.
Retail sales are up for those stores who are still standing. It must be noted that with no large chain stores like Mervyns or Circuit City plus the legions of mom and pop stores out of business, retailers that are left are going to of course look better than before. Their main competition went bankrupt. Somehow mainstream media fails to grasp that concept.
Sales of foreclosed and distressed homes are rising, representing 29% of all sales in January, just a few points lower than the record 32% in January 2009. US analysts suggest that foreclosures will continue to rise this year. New foreclosures filings are running at a rate of around 300,000 a month, according to RealtyTrac. There are currently some 5 million homeowners that are 90 days or more past due on their mortgages, according to Fannie Mae.
Millions more homeowners who are current on their mortgages owe more than their home is worth. This number is estimated to be north of one out of every five mortgages. In cities like Las Vegas the estimates skyrocket to 80% of all mortgages to be under water. As a result, an increasing number of families are walking away from their homes in a process known in the industry as “strategic default.”
Perhaps the next shoe to drop will come from the under-funded State pension plan arena. This is a disaster waiting to happen and could have a huge negative impact on our economy. An independent analysis of California’s three large pension funds last week, found an over $500 billion shortfall, and according to the NYT, more than six times the value of the California’s current outstanding bonds.
We are in a budding recovery from the depths of the recession, but the question is what kind of recovery are we going to actually have? Many suggest that we will see a typical V- shaped recovery. The stock market seems to be signaling this is what is going to happen. I don't think we've gone through a typical recession, and to expect a typical recovery is more faith-based than factual. We went through massive deleveraging and to date individuals are still deleveraging. This process will take years to fully complete. While the populace has stopped accumulating debt or in some cases, such as mortgages, has just walked away from their obligations, the federal government has stepped in and is now borrowing at lightning speed.
With that said the markets remain bullish, although still on light volume. The heaviest traded day was last Wednesday when the market went down. Next week starts the earnings start season and it is the week before options expire – usually negative week. Technically, we still have a rising wedge pattern and remain very overbought – both negative situations. Riskier investors can continue to play in the current bullish market environment until the pattern changes. I strongly recommend the use of tight stop losses.
Tax Day is Thursday, a dreaded deadline for millions of Americans. However, for nearly half of U.S. households it's simply somebody else's problem. About 47 percent of Americans will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions, and exemptions, to eliminate their liability.
The result is a system that allows almost half the country to not have to pay for programs that benefit everyone, including national defense, public safety, infrastructure and education. Conversely, the top 10 percent of earners pay about 73 percent of the total income taxes collected by the federal government. While the bottom 40 percent of US households make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment. Meaning we have half the people getting something for nothing. Not a bad deal for them.
Consumer credit slid $11.5 billion in February. Now declining 12 of the past 13 months. The year over year trend is running at -4.0%. Less credit is available to start business, buy homes, and create jobs.
Retail sales are up for those stores who are still standing. It must be noted that with no large chain stores like Mervyns or Circuit City plus the legions of mom and pop stores out of business, retailers that are left are going to of course look better than before. Their main competition went bankrupt. Somehow mainstream media fails to grasp that concept.
Sales of foreclosed and distressed homes are rising, representing 29% of all sales in January, just a few points lower than the record 32% in January 2009. US analysts suggest that foreclosures will continue to rise this year. New foreclosures filings are running at a rate of around 300,000 a month, according to RealtyTrac. There are currently some 5 million homeowners that are 90 days or more past due on their mortgages, according to Fannie Mae.
Millions more homeowners who are current on their mortgages owe more than their home is worth. This number is estimated to be north of one out of every five mortgages. In cities like Las Vegas the estimates skyrocket to 80% of all mortgages to be under water. As a result, an increasing number of families are walking away from their homes in a process known in the industry as “strategic default.”
Perhaps the next shoe to drop will come from the under-funded State pension plan arena. This is a disaster waiting to happen and could have a huge negative impact on our economy. An independent analysis of California’s three large pension funds last week, found an over $500 billion shortfall, and according to the NYT, more than six times the value of the California’s current outstanding bonds.
We are in a budding recovery from the depths of the recession, but the question is what kind of recovery are we going to actually have? Many suggest that we will see a typical V- shaped recovery. The stock market seems to be signaling this is what is going to happen. I don't think we've gone through a typical recession, and to expect a typical recovery is more faith-based than factual. We went through massive deleveraging and to date individuals are still deleveraging. This process will take years to fully complete. While the populace has stopped accumulating debt or in some cases, such as mortgages, has just walked away from their obligations, the federal government has stepped in and is now borrowing at lightning speed.
With that said the markets remain bullish, although still on light volume. The heaviest traded day was last Wednesday when the market went down. Next week starts the earnings start season and it is the week before options expire – usually negative week. Technically, we still have a rising wedge pattern and remain very overbought – both negative situations. Riskier investors can continue to play in the current bullish market environment until the pattern changes. I strongly recommend the use of tight stop losses.
Thursday, April 1, 2010
Round Two
The stock market opened this past week by moving higher – again! Remarkably, that’s been a pattern for 26 of the last 30 weeks. This is remarkable because historically Mondays tend to be the weakest trading day of the week, and Friday’s have traditionally been the strongest.
There was mixed news on the economic front. According to ADP and Macroeconomic Advisors, employers cut payrolls by 23,000 positions in March. The market had been expecting to see an increase of 40,000 positions. That is a swing of over 63,000 jobs to the negative. Last month when jobs were lost but less worse than expected, the markets staged a big rally. This time with a big miss the market held its own. On the bright side, the March decline in ADP payrolls was the smallest in over two years.
The current consensus estimate for nonfarm payrolls calls for an increase of 185,000 positions to be reported on Good Friday, while the US stock market is closed. At least 100,000 of those newly created jobs will come from the government hiring temporary census workers. Keep the champagne on ice when reviewing those statistics.
This week the S&P/Case-Shiller home-price index was announced revealing that prices nationally were down 0.7 percent from January 2009. The silver lining was that represented the smallest decline in over two years.
Lower priced homes, record low borrowing costs and government incentives have combined to support the housing market. However, the Federal Reserve’s purchase of $1.25 Trillion of mortgage securities ended effective yesterday. It will be interesting to see who picks up the slack or will we witness a sharp increase in mortgage interest rates. That could really put a damper on the housing market. A lasting economic recovery also requires gains in hiring on a consistent long term basis. That could help stem foreclosures, easing the pressure on prices and give Americans the confidence to spend.
Tuesday, Iceland suffered from a credit rating decline. Irish banks were being bailed-out as Greece could only sell half its bond issue needed to refinance their debt. International markets are still deeply tied to each other. While some countries are doing better than others, I still feel a domino effect could happen should too many countries not solve their sovereign debt issues.
We are in the monthly strength period, the trading days surrounding the end and start of any month. It has a very strong tendency to be positive as large sums of money flow automatically into the markets at this time, mostly from 401k, 403b, and other retirement plans.
The Dow is struggling to get above 11,000. Markets are extremely overbought, but have been for several weeks. Investor complacency is rampant. The government’s attempt to bail out the private sector by creating more debt will one day have to be dealt with and will most likely cause a severe disruption in the stock market. In the interim, the market remains bullish. The second round of quarterly earnings will be starting shortly and the year over year comparisons should be easy. How much of the better earnings are already factored into today’s market price remains the question.
Volume remains extraordinarily low. Any number of events could trigger a selloff and it is important to note that the market always goes down much quicker than it goes up. In the meantime the market continues to claw its way higher in a measured fashion. It is important to participate in the markets, but ensure you have a plan for protection.
There was mixed news on the economic front. According to ADP and Macroeconomic Advisors, employers cut payrolls by 23,000 positions in March. The market had been expecting to see an increase of 40,000 positions. That is a swing of over 63,000 jobs to the negative. Last month when jobs were lost but less worse than expected, the markets staged a big rally. This time with a big miss the market held its own. On the bright side, the March decline in ADP payrolls was the smallest in over two years.
The current consensus estimate for nonfarm payrolls calls for an increase of 185,000 positions to be reported on Good Friday, while the US stock market is closed. At least 100,000 of those newly created jobs will come from the government hiring temporary census workers. Keep the champagne on ice when reviewing those statistics.
This week the S&P/Case-Shiller home-price index was announced revealing that prices nationally were down 0.7 percent from January 2009. The silver lining was that represented the smallest decline in over two years.
Lower priced homes, record low borrowing costs and government incentives have combined to support the housing market. However, the Federal Reserve’s purchase of $1.25 Trillion of mortgage securities ended effective yesterday. It will be interesting to see who picks up the slack or will we witness a sharp increase in mortgage interest rates. That could really put a damper on the housing market. A lasting economic recovery also requires gains in hiring on a consistent long term basis. That could help stem foreclosures, easing the pressure on prices and give Americans the confidence to spend.
Tuesday, Iceland suffered from a credit rating decline. Irish banks were being bailed-out as Greece could only sell half its bond issue needed to refinance their debt. International markets are still deeply tied to each other. While some countries are doing better than others, I still feel a domino effect could happen should too many countries not solve their sovereign debt issues.
We are in the monthly strength period, the trading days surrounding the end and start of any month. It has a very strong tendency to be positive as large sums of money flow automatically into the markets at this time, mostly from 401k, 403b, and other retirement plans.
The Dow is struggling to get above 11,000. Markets are extremely overbought, but have been for several weeks. Investor complacency is rampant. The government’s attempt to bail out the private sector by creating more debt will one day have to be dealt with and will most likely cause a severe disruption in the stock market. In the interim, the market remains bullish. The second round of quarterly earnings will be starting shortly and the year over year comparisons should be easy. How much of the better earnings are already factored into today’s market price remains the question.
Volume remains extraordinarily low. Any number of events could trigger a selloff and it is important to note that the market always goes down much quicker than it goes up. In the meantime the market continues to claw its way higher in a measured fashion. It is important to participate in the markets, but ensure you have a plan for protection.
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