Guest Post by Opportunity Identified
Those who check out our work often, know that we are advocates of patience, risk management, and high probability asymmetric risk/reward scenarios. This is a fancy way of saying we like to minimize loss while maximizing gain. Isn’t that what every investor wants? Related to our approach, we have been known to tell our readers that “cash is a position too.” In this article, we’ll show you just how valuable cash is as a position. At this point, it needs to be made clear that there are many opinions about the functionality and validity of fiat currency. That is not what this article is about. We are not here to debate whether the U.S. dollar is worth the paper it’s printed on. We are writing to show you that holding U.S. dollars is a valid investment position and one that can protect your capital.
Continue reading Proof That Cash is a Position Too
Mark Hulbert has a piece this morning at MarketWatch in which he de-correlates the first Fed interest rate hike from any supposedly corresponding stock market movements. I agree with some but not all of what he writes. Let’s take it a chunk at a time.
Investors, it doesn’t matter when the Fed raises rates
Are you obsessed with whether the Federal Reserve will begin to raise official interest rates in July, September or sometime next year?
No. I’ve wanted them to do it for years now. So I’m obsessed with why the Fed refused to raise rates, despite a strong economy and inflation signals that were not nearly so tilted toward the dis-inflationary end of the spectrum as they are now. I am obsessed with wanting to know why the mainstream media and financial establishment even take their oh so heavily anticipated policy decisions each month seriously. I am obsessed with the all too obvious underlying message that this is all about a stock market ‘wealth effect’ that eventually trickles a little stream down Main Street, with Grandma and other prudent savers thrown in the gutter.
A review of historical data fails to find significant statistical support for believing that higher rates are in themselves bad for the stock market. And even if they were, the difference of a few months in the timing of increases makes little difference when determining if equities are expensive or cheap.
I concede that both of those beliefs are far from conventional wisdom on Wall Street. But the job of the contrarian is to challenge norms.
Agree. But I am not sure why Mark is using the 10-yr yield in his article. With the Fed at work on all parts of the curve, the whole thing is corrupted and not subject to extrapolation of historical data anyway. But insofar as it would be, why not use the Fed Funds rate or the 3 Month T Bill? This chart from NFTRH has clearly shown that rate hikes did not matter to the stock market for extended periods on the last 2 cycles… until of course, they suddenly mattered… big time.
Continue reading Hulbert on Rate Hikes & Stock Market; a Response
Guest Post by Elliott Wave International
What’s Bigger Than a $1.4 Billion Mortgage Ratings Scandal?
The great “inflated” expectations for gold, oil, commodities — and now stocks
Editor’s Note: You can read the text version of this story below the video.
On January 21, one of the biggest financial lawsuits in recent history came to a costly end. The accused, ratings behemoth Standard & Poor’s, agreed to a $1.4 billion settlement for “inflating credit ratings on toxic assets,” thus accelerating and exacerbating the 2008 subprime mortgage crisis.
Continue reading What’s Bigger Than the $1.4 Billion Mortgage Ratings Scandal?
Guest Post by David Stockman & Stealflation
Today’s [yesterday’s –ed] Dip is a Warning – Get Out of the Casino!
Shortly after today’s open, the S&P 500 was down nearly 2% and off its recent all-time high by 3.5%. But soon the robo-machines and day traders were buying the “dip” having apparently once again gotten the “all-clear” signal.
Don’t believe it for a second! The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world.
Over that span, the collective balance sheet of the major central banks has soared by nearly $11 trillion, meaning that honest price discovery has been virtually destroyed. This massive “bid” for existing financial assets based on credit confected from thin air drove long-term bond yields to rock bottom levels not seen in 600 years since the Black Plague; and pinned money market costs at zero—-for 73 months running.
Continue reading Get Out of the Casino!
How often do you see one company acquire another, at a 24% premium, and see its own share price pop by 7%? Answer… not very often. On a day when the market is down big? Even less often.
 Here’s the PR: Lattice Semiconductor to Acquire Silicon Image for Approx. $600 Million oh, and LSCC is now +15%; very strange indeed.
I had tentatively held LSCC and now need to go look into why the market perceives this as such a nice marriage. Strange stuff on a gloomy market day, including in the Semiconductors, where Intel is eating away at my gain in Lattice.
Even stranger, all of my Biotech holdings are green, as are the miners. The miners I can see, given continued deceleration in economic data, but it appears people are pile driving the Biotech’s and doubling down on momentum in the face of bearishness elsewhere. But the broad market seems to be making some decisions here folks. It is a strange and bifurcated market.
Guest Post by Tom McClellan
January 23, 2015
The news out of the European Central Bank on Jan. 22 helped to lift the major averages higher. The DJIA and SP500 have not yet made it back up to the level of their December 2014 highs, but the Dow Jones Utility Average has already pushed to a higher high. That promises more upside movement for the rest of the market.
It is not surprising that utilities stocks tend to move up and down in sympathy with all of the rest of the stocks. They are subject to many of the same forces of liquidity, and returns chasing. In spite of that general tendency, we do see differences in behavior sometimes, and those differences are worth paying attention to.
If the DJIA makes a higher high but the DJU makes a lower high, that sort of divergence usually leads to a selloff for the broader market. It is as if the utilities stocks can act as a canary in the coal mine, sniffing out liquidity problems ahead of time.
That is not the situation we are seeing now, though. With the DJU already up to a higher high, and leading the industrials higher, we are at least several days away from possibly having a bearish divergence, and that would only come into play after the DJIA has made a higher high. And this strength is to be expected now, as we are in a period of strong seasonality at the end of January, and we are also in the 3rd year of a presidential term which is nearly always bullish. In other words, the market is supposed to be going up now, and the DJU is confirming that a rally is what should be coming for the DJIA.