What We're Reading

While the U.S. saw their home prices plunge and begin to recover, China and Canada have still been in what's been considered a housing price bubble.  China even more worrisome when you consider their large shadow banking system (alleged to be 25-30% of their entire financial system) which runs behind the scenes and basically ignored by larger banks.  They are, after all, providing a service to small business and investor but at risk and what cost? 

(China home price index to the left - Canada's home pricing index to the right. )

In 2013 Fitch estimated China's shadow banking system represented an astounding 60% of GDP.  Yep, 60% and no one's paying attention to the children in the playground?  Mind blowing.   For all the complaints here in the US over government regulation, they are there when we need them; pulling on the reigns and don't wait until the child runs into traffic in front of a truck.  Well, they usually don't.

In any case, China's credit-market gauges are triggering al

Last week BTIG's Dan Greenhaus tried to dismiss the talk of the January effect (calm investors) stating “Normal corrections” tend to be anywhere from 5-8%, which is basically what we had/are having. If that’s the case, and our underlying fundamental views have not shifted (they have not), then stepping into markets down more than 5% should prove rewarding over time.  Of course me, being a skeptic of MSM (and everything out there for that matter), caught the last two words "over time" and raised an eyebrow.  Seriously?  Over time?  Most small investors won't risk more than 10% of any position.  Many only $100 if possible and this prompted me to poke around a little further on this January effect *thang*

The Street seems to buy the theory "When the first five trading days of the new year are positive, the month of January ends positive 76% of the time. When the month of January is positive to start the year, the stock market finishes the year positive 82% of the time."   While Barry Rit

If so, blame Mother Nature.  I dread seeing my next heating bill and will most likely be selling a kidney on Ebay to cover the cost.  A 2011 research paper by James Hamilton highlighted how historically, recessions occurred after a spike in crude oil prices.  Well what do you think we're witnessing in nat gas here?  Sure, it's an enormous short squeeze but what will the record snowfall, cold temperatures AND a spike in natural gas do for revenues, earnings and consumer spending? 

I'm surprised MSM media isn't talking about this more.  Sure, they're mentioning the slow down in the retail sector (charts already showed that) but what about the "R" word?  Oh wait, their job is to prop up and distract "entertain".  I almost forgot.

"When E.F. Hutton talks, people listen" was the mantra in the 1970's and 80's where commercials typically featured an business man at a holiday party or casual get together and when asked what his broker, E.F. Hutton said, everyone in the room froze, heads turned..........hanging on his every word.   Nowadays there's no doubt in my mind that when Art Cashin, the seasoned, ice cube-marinating stock market veteran talks, Chicago traders such as myself listen.  

Bull markets have a maximum shelf life of five years, and Wall Street may soon approach the end of this one, UBS' Art Cashin told CNBC on Friday.  If the S&P 500 drops below 1,770, he added, the markets could see a wave of secondary selling.

"It's a little bit of catch-up for 2013," he said on "Squawk on the Street." "We've gone for an awfully long time without a correction. Bull markets tend to have a maximum life of five years. We're getting awfully close to that."

What do your tea leaves tell you?  Is it time for some s

Of no surprise is that many of these names are in the phone/tablet and cloud arena.  One however that I am very interested in watching is the lawsuit between Aereo and large broadcasters (FOX, CMCSA, CBS and DIS).  Little, tiny underdog Aereo won the initial round in court however an appeal to the Supreme court ruling later this year is a make or break for broadcasters who typically do not charge for local channels for those with antennaes. 

I actually find it a thing of beauty that Aereo (who just began it's service in Cincinnati yesterday; it's eleventh U.S. city), saw that flaw and utilized it to their revenue model benefit.  Broadcasters are stuck between a rock and a hard place.  If they begin to "charge" for local with an antennae (pay for local tv?), the risk losing millions (of buying Americans) who will simply obtain local channels through their cable provider......and we will witness the slow death of local news

Other than Google, few digital companies have the ability to reach an entire populace, which classically could only be found on TV.  If Facebook’s plan works, it could lure in tons of ad revenue as marketers shift their focus from television to digital.

“Avoid saying anything negative about YouTube – leave the impression of the user experience up to them” Facebook tells its adtech partners in a leaked, confidential deck that teaches them to sell Facebook’s video ads. The 32-page document details Facebook’s plan to beat television with reach and YouTube with targeting, and spills the beans about an overhaul to video insights slated for Q1 2014.

Facebook slams other digital properties, stating  ”A lot of time is spent by people on mobile with Google properties, YouTube, Yahoo!, MSN, AOL, Twitter and Pinterest…And more total time is spent on mobile on Facebook and Instagram than all of those combined.” It’s that scale, the ability to reach hundreds of millions of people quickly, tha

Being long RIG and BP, this video on the next (possible) Bakken reserve truly caught my attention b/c BP is enormous in Germany. As the US becomes energy independent, what a boon would it be for Germany to control their crude oil reserves overseas?  What do you all think? Video courtesy of Mauldineconomics

• The days of GDP growth of over 9% in China appear over. Growth of 7%-7.5% seems to be the "new normal"; the authorities now seem comfortable with growth rates that they recently viewed as unacceptably low.
• We see three elements at work in the restrained policy reaction: first, growth was bound to slow inevitably as China converges with the advanced economies; second, more leverage in the economy means that the growth versus a trade-off in financial stability is more fully in play; and third, a tighter labor market with higher wage growth means that slower GDP growth is now more politically palatable.
• While slower growth will make the Chinese economy more sustainable on some metrics, there is still a need to rotate the drivers of growth toward consumption, which has yet to happen.

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That's the message being sent out based on McKinsey's latest executive survey and the first thing that comes to mind for me, is FX money flow.  Here are a few excerpts:

Global executives are increasingly positive about the direction of the world economy, though in our latest survey on economic conditions, the source of their optimism has shifted away from emerging markets and toward the developed world. For the first time since we posed the question 18 months ago, respondents say they no longer expect developing markets to lead global economic growth over the next decade. Instead, they expect developed markets—and an improving Europe in particular—to advance future growth.

Executives in emerging markets were cautious in June. Now, amid continued reports of slowing growth, volatile currency movements, and sociopolitical instability, they are particularly gloomy over the state of their home economies.  In fact  41% say economic conditions in their countries are worse now than they

While discussing the upcoming Twitter IPO and whether we were going to "get in" if shares became available, Matt offered up this interesting read on Twitter's acquisition of MoPub and what a game changer it is.  I highly recommend:

WTF is MoPub?

MoPub is the world’s largest mobile ad exchange. That means people trade eyeballs on mobile devices for money through the technology MoPub provides. And they do it billions of times a day.

“The two major trends in the ad world right now are the rapid consumer shift toward mobile usage, and the industry shift to programmatic buying.”

That’s absolutely right. Those are the only trends in the ad world that matter, and........... Twitter is betting big on both of them. It’s a bigger, ballsier bet than my former employer (FB) ever made, and it puts Twitter way ahead of any other social media player. I hate the douchey cant of MBA-speak, but to the extent we can use the term ‘game changer’ without puking in our mouths, this move is that.

Th

September is guaranteed to be packed with drama for the markets wall of worry.  As if Syrian tensions weren't scary enough.  Reuters outlines, not only will non-farm payrolls be highly important (will the Fed taper or no based on it) but German elections, Abe's 3rd phase of economic policy and of course, Obama's nomination for the next Fed Chairman.  (yes I'm completely ignoring the debt ceiling as a concern because it's not)

A few months back, it was Janet Yellen everyone felt would replace good old Ben Bernanke as the next Federal Reserve Chairman however as September nears, it's Larry Summers who has pulled away from the pack as the 5/2 odds on favorite, at least according to PaddyPower. 

Not being particularly interested in his resume bur rather what his views were on monetary policy and the like, I pulled these quotes from ft.com which should lend insight into Mr. Summer's beliefs on QE and Fed intervention.  Clearly he's slightly more hawkish when it comes to the use of QE.

"The stock market is overvalued." "The stock market is undervalued."

Which one of these statements is true?

Both are, thanks to quirks of the most popular way of measuring a stock's valuation: the price/earnings ratio.

While no one disagrees about what the "P" is when calculating the ratio, there is no consensus on how to define earnings-per-share. One of the biggest points of dispute: whether to use analysts' earnings estimates for the coming year or reported company earnings from the previous 12 months.

Comparing ratios calculated in these two ways is little better than comparing apples to oranges, according to Cliff Asness, managing partner at AQR Capital Management, an investment firm with $84 billion of assets under management. In an email, he went so far as to say that those who compare P/Es in this way are engaging in a "sleight of hand," though he allowed that many may "not be aware of the mistake they are making."

Consider the S&P 500's current P/E based on trailing

Ah, 1978 and U.S. airline deregulation.  What a thing of beauty.  Suddenly there seemed to be a new airline popping up each year, all vying for a piece of the pie in the sky.  Then how to drum up business.  Remember the days of airfare wars?   A new start-up would lower prices to attract business and the big  boys , no longer with the luxury of their monopoly, had no choice but to follow suit as their passenger counts fell in step. 

The consumer was obviously elated!  Even those who previously couldn't afford to visit Grandma in Boca, were suddenly able to take to the skies; kiddies and all.   

Those were the clear benefits of deregulation and the consumer loved it - but corporate profits did not.

Then came the rise of jet fuel.  Did the government intervene to stop it?  If they did, it was too little too late.  (click chart to enlarge)  It doesn't take a rocket scientist to imagine what that did to profits and prices.

Oddly enough with dramatically less demand, fuel prices haven't

It's one thing when prices are lowered to spur demand.  It's an entirely different situation when buyers "demand" lower prices and can hold out until they get it.  Potash names such as POT, MOS and IPI saw a 20% haircut in market cap last month even though potash prices themselves had not "plummeted" as forecast.   So which is the tail and which is the dog?  It would appear the stocks definitely were the leading indicator.   This from the WSJ may just be the tip of the iceberg lettuce.

"Indian potash buyers are (now) demanding discounts for the price of the key fertilizer ingredient as the Russian miner that shook up the sector's cartel system last month ramps up production, threatening to send prices tumbling.

The moves will further pressure shares of global potash miners, who have already lost up to 20% of their stock-market value since Uralkali said in late July that it was pulling out of one of two sales partnerships that together control two-thirds of the nearly $22 billion

You've been in a winning stock for months.  You've got a double or triple and feeling like a boss but quite honestly you're becoming concerned the bull trend may be coming to an end.  Not a crisis mind you; but mean reversion is normal and typical.  You understand such things so what method do you have to protect profits in such a case?  Here I offer a video by Jeff Hirsch, Editor of Stock Traders Alamanc which gets you out and to the sidelines; ready to re-deploy cash at lower levels.  Cheers-

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