What We're Reading

Saxo Bank thinks a slowdown in credit growth is bad news

IF THERE is a consensus at the moment, it is that the global economy is finally managing a synchronised recovery. The purchasing managers' index for global manufacturing is at its highest level for six years; copper, the metal often seen as the most sensitive to global conditions, is up by a quarter since May. 

But Steen Jakobsen of Saxo Bank thinks this strength will not last. His leading indicator is a measure of the change in private sector credit growth. This peaked at the turn of the year and is now heading down sharply. Indeed the change in trend is the most negative since the financial crisis (see chart). Since this indicator leads the economy by 9-12 months, that suggests a significant economic slowdown either late this year or early  in 2018. He says that

This call for a significant slowdown coincides with several facts: the ECB’s QE programme will conclude by end-2017 and will at best be scaled down by €10 billion per

Complex systems are all around us.

By one definition, a complex system is any system that features a large number of interacting components (agents, processes, etc.) whose aggregate activity is nonlinear (not derivable from the summations of the activity of individual components) and typically exhibits hierarchical self-organization under selective pressures.

In today’s infographic from Meraglim we use accumulating snow and an impending avalanche as an example of a complex system – but really, such systems can be found everywhere. Weather is another complex system, and ebb and flow of populations is another example.

Markets are Complex Systems

Just like in the avalanche example, where various factors at the top of a mountain (accumulating volumes of snow, weather, temperature, geology, gravity, etc.) make up a complex system that is difficult to predict, markets are similarly complex.

In fact, markets meet all the properties of complex systems, as outlined by scientists:

1. Diverse
Sys

Well, here it comes—September. It’s widely considered the worst month of the year for equities for good reason since it has historically seen the worst performance. Per Ryan Detrick, Senior Market Strategist, “September is the banana peel month, as some of the largest dips tend to take place during this month. Although the economy is still quite strong, this doesn’t mean some usual September volatility is out of the question—in fact, we’d be surprised it volatility didn’t pick up given how calm things have been this year.”

With the Federal Reserve, Bank of Japan, and the European Central Bank all set to announce interest rate decisions this month, and the S&P 500 Index up on a total return basis nine consecutive months as of the end of July, the stage is set for some fireworks in September.

Here’s some data to consider as September approaches:

• Since 1928, no month sports a lower average return than September, with the S&P 500 down 1.0% on average. February and May are the only other

Doubles Tops are forming in two key ETFs, the Semiconductor SPDR (XSD) and the Consumer Discretionary SPDR (XLY), and chartists should watch these important groups for clues on broad market direction in the coming week or two. First, let's talk about the Double Top. These patterns form with two peaks near the same level and an intermittent trough that marks support. A break below support confirms the pattern and targets a move based on the height of the pattern. 

Achtung! A Double Top is just a POTENTIAL Double Top until confirmed with a break below the intermittent low. In other words, the trend is still up as long as support holds. Furthermore, Double Tops are bearish reversal patterns and trend continuations are more likely that trend reversals. 

The chart above shows a potential Double Top brewing in XSD over the last three months or so. Because this is an ETF with dozens of moving parts (components), I am marking a support zone using the mid May low and the June low. A close belo

“Low volatility could be ‘the quiet before the storm,’” Nobel laureate Robert Shiller told CNBC last week, adding: “I lie awake worrying.” Over the past 20 years, the CBOE Volatility Index (VIX) has closed below 10 on only 21 days, 13 of which have been in the past two months. The current streak of 270-plus days without a 5% drawdown in any of the major U.S. indices is the longest since 1996. Meanwhile, U.S. equity values continue to diverge from earnings — Schiller’s Cyclically Adjusted PE Ratio (CAPE) has only been higher two times in market history: 1929 and 2000.

It’s 2025, and 800,000 tons of used high strength steel is coming up for auction.

The steel made up the Keystone XL pipeline, finally completed in 2019, two years after the project launched with great fanfare after approval by the Trump administration. The pipeline was built at a cost of about $7 billion, bringing oil from the Canadian tar sands to the US, with a pit stop in the town of Baker, Montana, to pick up US crude from the Bakken formation. At its peak, it carried over 500,000 barrels a day for processing at refineries in Texas and Louisiana.

But in 2025, no one wants the oil.

The Keystone XL will go down as the world’s last great fossil fuels infrastructure project. TransCanada, the pipeline’s operator, charged about $10 per barrel for the transportation services, which means the pipeline extension earned about $5 million per day, or $1.8 billion per year. But after shutting down less than four years into its expected 40 year operational life, it never paid back its costs.

Ran across this post and found it interesting although anything that's only been around 7-1/2 years is truly untested but only time will tell.  All eyes are on Congress for a break in taxes for the wealthy, as well as 'stumbles' from our leader and chief, Mr. Trump.  Between the Russia investigation and foreign relations (yikes!) the tension is building, or at least being applied by the left.  Will they reach the proportions where firms hit the 'sell' button? I have to say that September is coming -  the worst month for the market thanks to Mutual Fund profit taking at end of fiscal year.  Anything is possible.  Enjoy the ride.  From LyonsShare:

Sentiment indicators can be useful tools for investors, mainly on a contrarian basis. That is, generally when readings get overly bullish, it may signal a lack of remaining buyers in the market and vulnerability to a decline in prices. Conversely, when sentiment is extremely bearish, it is often a sign that selling has been overdone and prices

With the “FANG” trade getting long in the tooth, so to speak, Wall Street analysts are now scrambling to formulate new acronyms to accommodate the most robust names in Big Tech today. FAANG, FAAA, FAAMG and now FANTASY have been brought forward adding companies like Microsoft, Tesla and Nvidia to the original FANG Fab-Four of Facebook, Amazon, Netflix and Google.

As market warning signs so, they don’t get better than this. Widely accepted market acronyms don’t evolve gracefully. They pop. Remember the BRICS (Brazil, Russia, India and China) and NINJA loans – (No income, no job)?

What most investors miss is that universally understood and enthusiastically embraced acronyms reflect peak sentiment. They are a market narrative boiled down to its most simplistic and easiest to grasp form. Repeated over and over and appearing everywhere, they are cognitive ease at its best. Like pieces of sea glass, all of the rough edges have been worn away over time and everyone can hold them.

In my book

We are having a hard time finding high-quality companies at attractive valuations.

For us, this is not an academic frustration. We are constantly looking for new stocks by running stock screens, endlessly reading (blogs, research, magazines, newspapers), looking at holdings of investors we respect, talking to our large network of professional investors, attending conferences, scouring through ideas published on value investor networks, and finally, looking with frustration at our large (and growing) watch list of companies we’d like to buy at a significant margin of safety. The median stock on our watch list has to decline by about 35-40% to be an attractive buy.

But maybe we’re too subjective. Instead of just asking you to take our word for it, in this letter we’ll show you a few charts that not only demonstrate our point but also show the magnitude of the stock market’s overvaluation and, more importantly, put it into historical context.

Each chart examines stock market valuation fro

Past tense; that is.  A big move is coming in the S&P 500 and it will take everyone’s breath away. Simply put: The S&P 500 has traded in a multi-year consolidation range with a high of 2134 and a low of 1810. A breakout or breakdown out of this range could result in a measured technical move of the height of the range, i.e. 2134 – 1810 = 324 handles. Consequently a break toward the upside would target 2458 (15% above all time highs) and conversely a breakdown would target 1486 and represent a 30.4% correction off of all time highs.

I’ve outlined the bear arguments in detail in Feeding the Monster, so I won’t bother rehashing them here. However, in analyzing the larger market structures an interesting duality is emerging: A fight for control between the historic precedence of earnings and technicals and a very much divergent development in money supply, one of the key drivers behind stock prices since the financial crisis.

This duality can be summarized in one chart:

Speaking for a bre

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actuals and estimates for the current and following periods, please click here>>>

Here are the key points:

•    The Q1 earnings is effectively over now, with results from 492 S&P 500 members already out. Total earnings for these companies are up +13.5% from the same period last year on +7.2% higher revenues, with 72.6% beating EPS estimates and 65.2% beating revenue estimates.

•    These results represent a notable improvement over what we have been seeing from the same group of companies in other recent periods. While growth reached the highest level in more than 5 years, a bigger proportion of companies have been able to beat estimates, particularly revenue estimates.

•    For the Retail sector, total Q1 earnings are up +1.7% from the same period last year on +3.1% higher revenues, with 60% beating EPS estimates and 50% beating revenue estimates.

The freezing cold and no million dollar signing bonus would be enough to send me to Silicon Valley.  I grew up next to Lake Michigan and I'd take West coast weather any day..........unless there was more money involved.  Yes, I can be bought. *lol*

The US pharmaceutical industry is on the brink of a new ecosystem — but it's not taking off as smoothly as expected.

Up until the past few years, biologic drugs made from living cells didn't face competition once they lost patent protection. That's been changing with the introduction of drugs called biosimilars. But their rollout hasn't exactly been the game-changing experience some had expected.

"We believe that biosimilars will capture meaningful market share, but the disappointing commercial success so far with less than $2 billion annual sales illustrates that the bar is high," Morgan Stanley analysts said in a report on Wednesday. That's in large part because of the economic challenges that biosimilars face, the report says. 

Biosimilars are a bit more complicated than your average competing medicine: Unlike generics for chemical-based drugs like antibiotics that can be interchangeable with branded versions, the copycats of biologic medications, produced using living cells, have a

Wall Street pros say bull markets don’t die of old age. But after eight years of rising stock prices, being on the lookout for signs of a market peak makes good financial sense.

No bull lasts forever. Good times eventually are followed by bad ones, as investor euphoria gives way to fear and despair. The performance history of the Standard & Poor’s 500 stock index drives home the point: The 12 bull markets since the 1930s have all been followed by bear markets, or downturns of 20% or more, according to S&P Dow Jones Indices. The average bear market decline is a sizable 40%. Then there’s the mega-bears like the 2007-2009 rout during the financial crisis that knocked the S&P 500 down 57% and the nearly 50% slide after the internet stock bubble burst in 2000.

The current bull run, the second-longest in history and one that's generated a fourth-best gain of 254%, will eventually tire out, hit one final peak and head lower like all the rest.

The only question is when?

James Stack, a mark

Iff you're hesitant to make stock purchases at these levels, you're not alone.

NEW POST: Why Warren Buffett Is So Reluctant To Call Stocks A ‘Bubble’ https://t.co/HSqxmgC6ep pic.twitter.com/BPSOjaioMX

— Jesse Felder (@jessefelder) March 1, 2017

I found this interesting (the rise) however I have my own reservations because of the possible change in rates and inflation in 2017.  When inflation rises, interest rates also normally rise to maintain real rates within an appropriate range. PE ratios need to decline to reflect the increase in the earnings discount rate. Another way to look at it is that equities then face more competition for money from fixed income instruments. The cost of equities must therefore decline to keep or attract investors.  Then there is the Rule of 20 to consider.  Rule of 20 equals P/E + long term interest rates (average of 10 and 30 yr bond rates).  If at or below 20 minus inflation -- the market is a buy.  If above 20 minus inflation -- the market is a sell. Today we're at just about 20.  I think I'll keep my cautious side up.  Keep moving up my alerts and stick to only brief swings.  Something tells me it's going to be an interesting year.  All focus on the Fed and inflation.  

During the past week (

Rules and regulations exist to let us know what behaviors we should expect from the people we do business with. Sometimes, good sense or social convention overtake these rules — and they don’t matter so much. Just about everyone wears seat-belts these days (we all know how much they improve our odds of survival in an accident); the ranks of underage smokers have plummeted (it’s no longer cool). Once the toothpaste is out of the tube, as they say, there’s no cramming it back in.

Such is the case with the Department of Labor’s fiduciary rule. On Friday, President Trump asked the Labor Department to review the rule, which requires brokers working with retirement savers to put the interest of their clients ahead of their own. After years of work on it, the regulation was finalized last year by the Obama administration.

At first blush, this looks like a big way the Trump administration could directly affect everyday investors. As it turns out, whether the fidicuary rule hurts you isn’t up