About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Saturday, August 12, 2017

Stock Market -- Aug. 1 -- Nov. 1 (2)

Patriotism, as they say, is the last refuge of scoundrels. And, in Messrs. Trump and Kim, we have
quite a pair. I am having trouble believing that this contretemps is more than a giant Trump
smokescreen, with North Korea a willing accomplice.Trump is falling in the polls. He fumbled
his end of the health care bill and special counsel Mueller and his group are taking a hard look at
whether serious financial crimes were committed involving Trump et al and Russians. With the
fire and fury threat, The Donald has drawn attention away from increasing political weakness.
But, since there is no guarantee this is not an exercise in reality TV fakery, but is instead a crisis,
the stock market took a jolt this week.  VLE Weekly . The Value Line Arithmetic dropped sharply
this week and is at shorter term support just under 5500. Moreover, the index is set to test its 40
week m/a and has broken the uptrend in place since the latest advance began in Feb. '16. These
are 'heads up' factors for the broad market, and we'll have to see next week whether the latest
contretemps between the US and the PRNK will fizzle and provide relief, or persist and worsen
and lead real to genuine trouble for us and the market.

Market breadth last week took its sharpest drop since prior to the 2016 election. The NYSE
A/D line could be ready to test its 13 wk. m/a and the rising trend lines from Feb.'16 and the post
election rally have been broken. Note, however, that the A/D line is still well above its 40 wk.
m/a., so a longer term test may still be a ways away.  NYAD Weekly

The bottom panel of the chart shows the VIX or volatility measure. It has been in a jagged
down trend since the autumn of 2015, but last week's bounce broke that. This represents
another 'heads up' for the market.

Well then, have we entered a more volatile and corrective interval that has characterized so
many past Aug. / Oct. periods? Too early to tell I say, especially since you have a bullshitter
like Trump as the instigator.

Saturday, August 05, 2017

Stock Market -- Aug. 1 -- Nov. 1

History shows that the period of August through the end of October can be volatile with no shortage
of price corrections and even a couple of crashes (1929, 1987) thrown in. It is a period when market
players critically assess what their year may look like and are also forced to look at the next year
more seriously. It has also been a time when the Fed tightens the reins on liquidity ahead of the
typical holidays easing interval toward year's end.  Seasoned investors know the history and are on
heightened alert. As well, it is a time to plan portfolio and rotational change for the following year.
So, you may find plenty of cautionary market commentary from fundamental and technical sources
show up in you in-box. For all I know, the market may skate smoothly right on through this period,
but I plan to showcase it weekly to avoid boredom from taking further hold.

Now there are contentious political issues ahead, including raising the debt ceiling, trying to settle
on a budget and the possible introduction of tax reform legislation. Tax reform could be a plus if
tax cuts come into play, or a bust if talks do not even start in the Congress or fail when they do.
Moreover, as autumn wears on there will be Fed behavior to study and speculation about who, if
anyone, might replace Ms.Yellen as chair. Finally, the Mueller investigation of Russia / Team
Trump is moving into probable cause territory with two grand juries now open for business.

I will focus on two charts. The first is the Value Line Arithmetic price chart, an unweighted index
of over 1700 closely watched issues. Secondly, comes the NYSE cumulative advance / decline

The Value Line ($VLE) is trending up but has lost substantial momentum since early in the year.
The weaker positive action reflects the potential for slower economic growth over the rest of
the year which is also reflected in weekly forward looking economic indicator data. This index
is holding its positive trend line from early 2016, but just barely.  VLE Weekly

The NYAD is in a second wave up from Feb. '16. It has lost momentum this year, but is stronger
than the VLE. This suggests investor preference for large cap stocks. The VIX is shown in the
bottom panel of this chart. It is in the low end of the historic range, and we'll see how it fares
over the Aug. / Oct. period.  NYAD Weekly

Sunday, July 30, 2017

SPX -- Monthly

The monthly SPX is overbought and hyper-extended when compared to its post WW2 price channel.
There is no price bubble as happened at the end of the past century, and the overextended nature of
the current market does not match the 'bubble echo' which occurred over 2006-7. SPX net per share
is expected to be right around the trend line plot since WW2. Viewed historically, the SPX p/e ratio
at about 18.7x is a hefty 2.5 multiples above the very long term average and directly reflects the
nominal level of short term interest rates and current historically low inflation. The Phillips
curve -- the inflation rate varies inversely to the unemployment rate -- has failed in recent years
as the economy has progressed slowly enough not to trigger off a bout of cyclical accelerating
inflation which has some punch to it. These developments have triggered off a round of  'new era'
thinking in which the economy is seen as able to progress without experiencing the sort of credit
crunch that could trigger off deep earnings and p/e multiple cuts (reversions to norm). According
to a growing group of strategists, it may not be the best of all possible market worlds, but is a
damn fine one. SPX Monthly

There are critics who maintain correctly that proclamations of a new era for stocks will ultimately
turn out to be bullshit and that this will, too. They will be proved right, but when a nastier time
will arrive and how well the market might do in the interim are $64 K questions. There are
features in play now -- the failure of the Phillips Curve and the growth of excess private sector
liquidity in the wake of an already lengthy economic expansion -- that are truly novel. The balance
that exists in both features now are underwriting the market's advance and given their novel
nature, signposts of imminent disruption will not be easy to proclaim directly. This is somewhat
of a 'thinking man's market' and curiously enough, those type of markets are usually weak and
are not making new highs. The best of luck to you!

Saturday, July 29, 2017

US Dollar

In a July 4 post, I opined that the dollar was becoming increasingly oversold as negative sentiment
mounted. From a technical perspective, the USD has now reached critical support around 93 based
on weekly closing prices. The bears appear quite confident the dollar is about to break support and
head well lower.  USD Weekly

The Fed has relaxed some about tightening policy further in view of lower inflation currently,
 but it still seems determined to move away from accomodation down the road as the
economy is still expanding. Moreover, the Fed wishes to start to shrink its balance sheet soon.
With private sector liquidity  still plentiful, this may not be a disruptive event at all in
the near term, but eventual quantitative tightening (QT) will become more of a factor as the
economy matures further. The dollar bears may also regard the sharp recent recovery of the oil
price as also in their favor even though it may eventually add inflation pressure in the US. and
strengthen Fed resolve. The capital and financial markets have been relatively immune to the
continuing Trump shit storm so far, but perhaps the dollar bears are more anxious. The US, as a
matter of fact, is  just a few short steps away from a constitutional crisis over Trump's desire to
collapse the inquiries into Russian intervention in the US election and heavy hints of financial
wrongdoing that could involve Trump business entities.

The USD is now very oversold for the intermediate term and it seems a little odd that dollar
shorts coming on now would be richly rewarded after such a sharp decline has already taken

Saturday, July 22, 2017

SPX -- Weekly

The SPX is overbought for the intermediate term, is getting overextended for the intermediate, and
fully valued on the more liberal valuation measures. The weekly cyclical indicator composites did
better last week but have been running flat for most of 2017. Outside of all that, the market is still
trending higher as players use the slow growth, low inflation, and expanding private sector liquidity
environment to coax the SPX higher. Market psychology remains formidably positive even though
there is a strong consensus that the market could easily correct by 10% at some point through mid
2018. With momentum measures on high, extended planes, you need to monitor the situation
diligently.   SPX Weekly

Thursday, July 20, 2017

Financial System Liquidity

The end of the Fed's QE programs did hamper the economy and the stock market for a while, but
the view here was always that if private sector funding responded positively, the economy and the
market would be OK. Strangely, the US is now moving on quite a different plane. There is clearly
sufficient liquidity to fund economic expansion and rising capital markets. The surprise has been
the steady rise in private sector liquidity preference. Historically, as an economic expansion
matures, the basic money supply adjusted for inflation tends to flatten out and occasionally go
negative as consumers and businesses run higher spending budgets. But here we are with real M-1
up nearly 7% y/y on miniscule short rates. In a like manner, my short term credit supply / demand
pressure gauge would now be running strongly positive as banks hustled to meet rising loan
demand from business. Not this time out. The gauge now sits at a -5.4, which is more indicative
of recession or the initial stage of an economic recovery. With folks more interested in holding on
to their money, one outcome is that there is now a built-in tendency for the economy to grow rather
slowly and for inflation to remain subdued. There are unusual circumstances, too. Business
inventories are continuing to run on the high side, and the Trump /GOP threat to repeal ACA and
replace it with a stingier health plan has up to 50 million consumers worried about losing coverage
or paying higher premiums. This dumb, drawn out saga is leading people to defer spending and
build liquid kitties instead.

This strong contra-move in favor of liquidity preference by the private sector provides funds to
support the markets at present, but if it continues, it will eventually imperil the economy or keep it
running at stall speed.

Investor confidence is high, but it would be nice to see stronger business and consumer confidence.

Monday, July 17, 2017

SPX -- Daily

Primary market trends remain intact on the daily SPX chart. breadth is moving along positively.
Volume is light, but that could be mostly seasonal. Momentum measures are positive, but they
have been deteriorating progressively. The weekly cyclical fundamental indicators have been
flat since early 2017, suggesting the economy will lose positive momentum out ahead. Retail
sales have already been softening and some key monthly sales and earnings measures have been
slowing. However, Ms. Yellen is now spinning the same story in a dovish fashion -- moderating
inflation -- and the Street likes this as it suggests credit tightening will proceed more slowly. My
e-mail continues to gradually accumulate caution signals from seasoned and successful strategy
people. Pressure from centers of prominence outside the Beltway are telling the Trump team
and the GOP to get moving  on stimulus programs, but Senate leader McConnell, a naysaying
'Miss Grundy' type, is trundling along slowly as he follows his own muse. SPX Daily

The chart shows the market has been bending but not breaking for months now and has been
playing hob with the 25day m/a, sending out mechanical sell signals on breaks that have whip-
sawed bearish traders.
I am basically done with the SPX and macro-style trades above 2450 and would have to see
the MACD (bottom channel of the chart) skitter down to -40 or so before I would consider a
long side trade. Even then, I would only use a small amount of capital. The market owes none
of us a blessed thing, and, for my part I am just thankful the world did not head into full fledged
economic depression in 2008.