What We're Reading

Over the past 50 years, the global economy expanded sixfold as the world’s population and per capita income each grew at unprecedented speed. The global population more than doubled while average per capita income almost tripled to about $13,000 at 2012 purchasing power parity. However, there are significant doubts that this growth bonanza will continue in the long term given that the demographic tailwinds of the past half century are now waning.  Hundreds of millions of people were lifted out of poverty.  Yet without significantly boosting the one engine the world economy still has—productivity growth—this period may prove to be a historic anomaly. 

Unless we can dramatically improve productivity, the next half century will look very different. The rapid expansion of the past five decades will be seen as an aberration of history, and the world economy will slide back toward its relatively sluggish long-term growth rate.

Over this time, two factors powered exceptionally fast GDP growth

2015 is the year which we were supposed to be "back to the future" riding hover boards.  While it appears we're getting close and I have to wonder what venture capitalists are contributing to their ground floor as well as flying cars.  Where will they in another 10 years?  Beam me up Scotty! 

For the love of Pete.  I can only imagine what's going through the minds of investors.  First fears of energy name defaults and now China's real estate (bubble) may have it's first big default?  It'll be a fun Sunday night when futures open. 

The Chinese real-estate developer Kaisa Group Holdings had a healthy balance sheet, according to investors and observers alike. It was the top-rated residential-property-sales firm in the city of Shenzhen, in the first half of 2014. It was known for fast, reliable work.

But on Thursday, Kaisa appeared to become the first Chinese development firm to default on offshore debt, missing a $128 million interest payment on $500 million of debt to foreign investors. Representatives of the company say they aren't sure whether the payment was made, The Wall Street Journal reports.

Consider this a slap in the face to investors chasing yield around the world and finding it (or so they think) in emerging-market junk bonds. Back in 2013, Kaisa and its fellow C

It seems not all money managers out there have the warm-n-fuzzies for equities in 2015.  Especially considering the almost two year sell-off in commodities, finally joined by crude oil in dramatic, face ripping action.  In fact, one feels that the rise in interest rates in 2015 will do what is not expected; flatten the yield curve.

If the curve flattens gradually, most traders said it probably means investors believe the Fed will keep future inflation in check with gradual rate hikes. Bond traders hate inflation because it erodes the value of their fixed-income investment.

But if the curve-flattening trend speeds up?

"It's time to trade out of investments whose success depends on a strong economy... for both stocks and corporate bonds," said Anthony Crescenzi, chief bond market strategist at Miller, Tabak & Co., an institutional brokerage.

This means reducing exposure to sectors like retail, transportation and automobiles and moving into defensive picks like health care and consume

For day traders and swing traders, a trend day can be the difference between extreme profits and being left behind in the dust; having exited a trade too quickly.   Properly identifying a trend day early in the trading session is key to sitting on one's hands and not exiting too soon whether we're trending up and getting out (not fade) if you are short the market.   

Well known commodities and futures trader and President of LBRGroup, Inc. Linda Bradford Raschke points out something I feel of note right off the bat:  that trend days tend to occur after the market consolidates and digests gains; or what we call a few "inside days":

When a market consolidates, buyers and sellers reach an equilibrium price level — and the trading range tends to narrow. When new information enters the marketplace, the market moves away from this equilibrium point and tries to find a new price, or “value” area. Either longs or shorts will be “trapped” on the wrong side and eventually forced to cover, a

Dick Evans, chairman and CEO of San Antonio based Cullen Front Bank (CFR) made the rounds in December chatting with CNBC in an effort to reassure investors that the low price crude oil was only temporary and would not translate into a revisiting of the bloodbath of the 1980's, however their chart says that investors aren't drinking the koolaid.  (chart right - click to enlarge)

The same investor fear can be seen in southern lender BOK Financial which operates in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, and Kansas/Missouri. (chart below - click to enlarge)

I believe that barring an OPEC cut in production or some outside supply disruption, crude will NOT recover in 2015 as explained in this post.   Is this what these bank charts are hinting at?

The next question is if these banks begin to see defaults in oil and gas names, just how many dominos lie behind in the high-yield bond financial trail.  As Becky Quick points out, hedging only lasts for so long so i

While guests on CNBS CNBC and Bloomberg are busy encouraging you to buy oil names which are down over 50%, I wouldn't expect to reap any big rewards any time soon.  In fact I believe there will be much more pain ahead, depending on the strength of the company you chose.  Iran sanctions may be giving it a boost near term but once they're lifted (or eased) their production is expected to double which is once again, bearish for this oversupplied market

While everyone is in agreement that crude oil is in a bear market, quite often one strategy is to buy the laggard and anticipate it to outperform the following year.  The trouble with crude oil however, are the fundamentals.

1. U.S. consumer Demand (figure 1)  Consumption has been dropping since 2000 thanks to more fuel efficient autos and younger Americans (millennials born from 1980 to early 2000s) being drawn to work in and the lifestyles of large metropolitan areas.  Baby boomers (born 1946-1964 or 51-69 years of age) will contribute

Deflation = Low wages + negative interest rates

Deflation will be the dominating theme of 2015. Deflation occurs when prices of production factors (wages and interest rates) fall to the extent of limiting labour and capital from drawing higher prices. The culprit to these conditions is typically an excess supply of labour and capital to the extent that wages and interest rates weaken substantially until they draw sufficient demand to the point of stabilising their price.

But as demand for labour and capital fails to fill the supply of workers and available liquidity, the spiral of excess supply takes over wages and interest rates remain weak, and even negative. Deflation hurts borrowers relative to lenders. Countries whose central banks combat deflation, or conduct reflationary policies, should see their currencies depreciate. As low inflation extends to disinflation and creeps into deflation territory in Europe and China, the US runs the risk of importing deflation via the strengtheni

Each year I post the annual TCM remembers video and the amazing people both in front of the camera and behind the screen who entertained us for generations however this year the one I will miss most, without a doubt is Robin Williams.  His quick wit and unmatched improv skills were like no other. His ability to change mode on a dime was unsurpassed.  Such rare gifts were both a challenge for the camera man and an inspiration to the young that anyone can bring a smile to others and in doing so, endear themselves in our heart.  I find is extremely difficult, almost impossible, to pick which Robin Williams character I loved the most.  From the inspiring English teacher John Keating in Dead Poets Society, to the medical student who put patients ahead of business in Patch Adams.  It's safe to say I loved them all.  Gone far too soon with a life unfinished.  Rest in peace Robin.  What a legacy. 

Provided without commentary.   Fee free to add your own.

Who doesn't love the lame duck session?  It's that special time of year when Santa comes early to Wall Street and you too, can benefit.  As one example, outgoing Congressmen and woman who lost during mid terms, tend to throw in the towel (they won't be around next session anyway) and all types of goodies get through the Congressional pipeline which were stalled during the normal session.  This years winners if you're an investor are:

• Banks and insurers.  Congress repealed a portion of Dodd-Frank so that derivatives will now be covered once again by FDIC Insurance, thus lowering the risk to banks and insurers like AIG.*
• Health insurance companies get to keep their special tax breaks.
• Tourist destinations like Las Vegas get their travel promotion subsidies.*
• In a victory for food companies, the legislation even makes federally subsidized school lunches less healthy by allowing companies that provide them to include fewer whole grains. This boosts their profits because junk food is less

With half a century in the market, whose wisdom better to draw upon than Art Cashin, Director of Floor Operations at UBS.

Lastly what Christmas holiday would be complete without Art's annual poem courtesy of BusinessInsider:

'Tis two days before Christmas

and at each brokerage house

The only thing stirring

was the click of a mouse

Down on the Exchange

the tape inches along

Brokers bargained and traded

as they hummed an old song

 

The Fed says they're "patient"

but some folks still fear

That rates they'll start hiking

too early next year

 

Frisco took the series

and Seattle the Bowl

But Tiger still struggles

to get the ball in the hole

 

Ellen D. took a group selfie

at the Oscar awards

The darn thing got retweeted

till it pulled down some boards

 

Putin scooped up Crimea

and some parts of Ukraine

But an oil plunge and sanctions

are causing him pain

 

In Europe a song contest

was won by a nun

And the song that she sang was -

Girls just want to have fun

 

In Portland a kid offered

a hug

U.S. markets will close early tomorrow, Christmas Eve and remain closed on Christmas day.  Regular trading will return on Friday although who's really going to be around?  Not me.  Even though it's a holiday week though, I will still be charting in the background (mental health time) so check back when you find spare moments and checkout our "Charts" section for new setups. See you back here full time next Monday.

Back in the 1990's, we as Managers were trained in racial diversity and businesses began their slow and gradual integration for the Hispanic community (Spanish calls center workers, select "5" for Spanish on automated phone services, packaging with alternate language, etc.). The CBO had already made the predictions of the shift in U.S. ethnicity and companies had to prepare. Fast forward 10 or 25 years from now now and just what will be the face of the consumer ahead?  What about job growth, income growth and how many older Americans will fall off of the economic spending gap?

Unlike the Dogs of the Dow, which is a strategy buying the 10 Dow stocks with the highest dividend yield at the beginning of the year, then dumping the "dogs" at the end of the year and selecting new ones, the "Free Lunch" trade is a very different strategy executed in mid December and shorter in duration.  It attempts to take advantage of several year end phenomena such as index re-blalancing, tax selling, Santa Claus Rally, January effect, etc. and lasts until February.

According to MrTopStep:

Research has shown that NYSE stocks making new 52-week week lows in mid-December, primarily due to year end tax-loss selling, tend to outperform the NYSE through mid-February. These stocks are selected ahead of the Santa Claus Rally and approximately near the start of the January Effect.

Many of the stocks selected for the “Free Lunch” trade are down for good reason. Declining revenue and shrinking profits are most common amongst these names while others may have run into legal or accoun

• What BMW’s China sales say about their economy.  “Xubao” or false reporting; who knew!  Quartz
• Pay your bills or we take your cat (seriously)  TheMoscowTimes
• A $1.65 billion buyout, 300 hours of video uploaded every minute,  300 million hours streaming per day, a “farm” of sorts where prominent studios are paying huge sums to acquire companies that bundle together YouTube channels,  an ever-expanding ad platform, a new premium service (Music Key) and a new marketing strategy aimed at turning YouTube starts into, well true stars.  Aand imagine; YouTube is still an experiment. NYTimes
• Why the middle class isn’t as well off as some would have you believe.  According to IRS data, 99% of American households make less than $388,000 a year, and 95% make less than $167,000 a year. The true middle in terms of income — that is, the cutoff to be in the top 50 percent of earners — is roughly $35,000 a year. Salon (and those middle class jobs are disappearing to automation and outsourcing overseas

According to BTIG Research, there remains cause to be concerned after the stock market's bounce last week.

For the first time since the October low, breakdowns have outnumbered breakouts. This is a byproduct of the 5% pullback in the SPX over the past two weeks, which naturally saw some stocks break support levels. We are inclined to worry about breakdowns when they are abundant (at least 10% of the SPX, more than this time around) and recurrent (outnumbering breakouts for at least 2-3 weeks).

This last occurred in October, when the market suffered deterioration in breadth that was significant enough to suggest a structural shift may be underway. For this reason, we would be inclined to use strength to sell stocks that previously broke down or stocks that have exhibited weak relative strength.

Looking closer at a few of the internals:  A 5-year weekly chart of T2107, or stocks which are above their 200d SMA, has made a lower high and appear to be rolling over again -  almost a