How far will they go?

From Doug Noland @ prudent bear .com CBR
http://www.prudentbear.com/2014/10/more-wackoism.html#.VEuUFWK9KSM

"Seems an opportune time to revisit Fed governor Bernanke’s speech from almost 12 years ago, “Deflation: Making Sure ‘It’ Doesn't Happen Here.” Since Bernanke’s 2002 “U.S. government has a technology, called a printing press” dissertation, the Fed’s balance sheet has inflated from $800 billion to $4.5 TN. Treasury debt has inflated from about $4.5 TN to $12.6 TN. Total system marketable debt has jumped from about $30 TN to almost $60 TN. On the rate side, despite booming mortgage Credit growth, the Fed waited until June 2004 to nudge rates up 25 bps (to 1.25%). Rates didn’t make it to 4% until late 2005, just as mortgage Credit was wrapping up its fourth consecutive year of double-digit expansion. 

Bernanke: “But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior). Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys… Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.”

Rally Continues

Futures are positive this morning, the snap back rally has only taken a few days to recover most of its losses from the decline. This type of fierce rally is more reminiscent of a Bear Market rally.

However, my index has reversed its long term signal, so it's either everyone in the pool again, or wait.
Long term interest rates on savings and safe money markets make it near impossible to get a return from sideline money. That's the full intent of the Federal,Reserve strategy, to get everyone in the pool.

D

Does Bull still have a pulse?

My trusted indicator from an index point signal has gathered itself and is above the Bear line. This is a SLOW moving indicator , and as monthly chart needs time to settle itself.
With the recent rally, the initial RED signal with a breach of 90.00 was reversed. I do still believe we are in the latter phases of building THE TOP, if new highs occur, I do not expect them to greatly exceed what is in place now.

A big miss from IBM today didn't paint a great picture for corporate spending, IBM is a better economic indicator than Aaple. IPAD sales are disappointing , but iPhone sales were OFF THE HOOK!
Consumer spending is 70% of the US economy, with wages stagnant that also does not bode well for the economy.
Interest rates are still being held at 0% by the Federal Reserve, even after 5 years of recovery they cannot even say when they will begin to rise.

Is this recent uptick in volatility just a short term phenom? Did we get enough correction to resume bull march upward to infinity?

We are quickly correcting oversold condition, and approaching the 200 day moving average. Let's see if it continues business as usual and what me worry.

D

ECONOMY IS WEAKER THAN IT APPEARS

Bloomberg

Underemployment worse than U.S. data suggest

Federal Reserve policy makers are missing a key element as they assess the health of the labor market: data that includes whether those who are employed are overqualified for their job or would like to work more hours.

• Survey: Pay raises rarer despite strong US hiring

In  the midst of weakening global backdrop, investors STAY complacent and feel the Federal Reserve will continue to inflate the stock market, even after 5 years of doing so.

What may be lost on many, is this has been great for the top 1%, who own lost of stock and who also may get stock options, which they convert and sell to you and then pay 15% tax on all the dividends.

A GULF is being created between the haves and the nots. How do you keep a credit bubble going? By expanding the bubble by ever greater quantities, and that is becoming harder to levitate.

I don't see people taking this seriously....to perhaps their own detriment at some point.

D

Are new highs in the S&P 500 still possible?

I consider my indicator pretty reliable, but we still have the let the month play out , even as it has dipped into Bear territory, it is possible it doesn't end up there but back above the danger line when all is said and done.

It certainly looks like some kind of bottom is in place, and especially traders see the opportunity to catch Bears on the wrong side of trade and squeeze more pain. Friday was options expiration and always the MOST pain that can be afflicted, so be it will be. That coincided nicely with the recent decline into oversold territory.

So now we have the support that was broken and the 200 moving average above, near 1900 and that would be good area to be watching to see if it holds or if when broken the Bears freak and cover into a melt up rally.

Change is in the wind, a TOP is here or being formed with weakness underneath the overall market not seen by many. Could be buying opportunity here, could last into Xmas rally.
October did a good job living up to its reputation as the worst month of of the year.

With drop In 10 year yields, refi's perked up again. And don't forget the extra jingle lower gas prices have put into consumers pockets.
All that said, some retailers are warning of weaker Holiday spending, for some reason...

D

Rally time?

2 stabs at the lower price range today, good chance short term the selling could be washed out.
On any rally we will pay close attention to how far it can go and where we broke strong support, should now be resistance.

If price can rise above certain levels I am watching I would have to reconsider my Bear Call. Always be open to anything, but I do have my signal. But in TA what has worked before is NO guarantee it will work again. But I a pretty confident a change has occurred.

D

Dennis Gartman gets Defensive

From cnbc.com
"After three straight days of declines in the major stock indices, it's time to rethink long positions, Dennis Gartman said Monday.

"You should be less long than you have been, and I think you should be demonstrably less long than you have been," the editor and publisher of The Gartman Letter said on CNBC's "Fast Money."

After a triple digit gain into mid day, going into the last half hour there has been NO conviction among buyers and they take for the exits once again, even with strong oversold condition.

Bulls have not shown resilience in the face of easy money the last 5 years, FED got your back, f the savers rally.

Second Chance Highs In Place?

http://solarcycles.net/2014/10/12/pre-monday-update/ must read with analogues from different markets.
D

RUBBER CHICKEN HAS MET THE ROAD. IS A BEAR MARKET UPON US?

Many of my long time blog readers understand my point of view, and it's more of a long term view of things. I'm not your stock picker, I've always felt my goal was to educate, enlighten and open the minds of investors so they would want to learn more and maybe be more prepared to forge their own road to financial freedom. Most don't want to spend the time it takes to gain the knowledge to assist themselves in making financial decisions. And in most cases an individuals investment decisions are made for them. Financial advisors are heard followers, they are never prepared for Bear markets.

One of my most trusted long term indicators is flashing RED, warning a Bear MARKET may be upon us. We have been through some corrections before, but is it different this time?  And how can anyone know? Nothing is 100% for sure, but here is what I see and what concerns me. I know I have not been posting much lately, but 3 years ago I started my own business, and put all my efforts in supporting my family and trying to grow my business. I will not abandon this blog however, and will try to post at least once a week going forward.

Market was overdue for a correction, but the small caps seen through the RUT,  have fallen For over a month. And lately the Transports have been leading the charge, you never like to see that.

Bull markets don't last forever , this one is 5 plus years old. Unless this is a Secular trend , it is long in the tooth.

Gold has fallen into a Bear mkt, and is flashing worries about Deflation, I believe this is more than just a strong dollar worry for gold.

Bond market is nearing its low in yields , showing a strong move for defense and preservation .

The FED minutes came out and sounded like easy days will continue for ever, so the market romped for triple digits. But the  very next day the market gave it back, so mere words seem to also have diminishing returns.

Our markets and economy are reliant on ever larger expanding credit growth, and we are not getting enough. At some point, this game will be over, the FED and other Central Banks have fought hard against historical trends and the inevitable .

It feels better, it may be better,,but the party has been ongoing on laughing has. When the music stops, not many will be laughing.

I'm All A Twitter

http://davidstockmanscontracorner.com/dot-com-bubble-2-0-lunacy-by-the-numbers/

You can't say the markets are driven by easy money, more like free money. With stocks at nose bleed all time highs, employment rocking( so they say) already reaching the FEDS targets. They cannot even change the language in their statements as to WHEN this insane ZERO RATE policy will end!

" well, if you listened to all the naysayers, you would have missed 28% gains in the last year"
That may be so, but I will repeat for the hard of hearing, if you overstay your welcome on this imaginary market not based on fundamentals, it will cut you in half.....a big WHEN the music stops.

D

You can't print your way to prosperity

"Monetary policy promised way too much back in 2012. As I’ve written repeatedly, at this stage of a most spectacular and protracted Credit cycle, monetary inflation can only make things worse. Where does it end? And not for a minute do I believe the alarming rise in geopolitical risk and instability is unrelated to years of prolonged global monetary disorder. Mismanagement of the world’s reserve currency is replete with huge consequences. Mismanagement of all the world’s major currencies is a complete fiasco. " Doug Noland of prudent bear.com

Stock markets that defy gravity with Central Bank promises of forever zero interest rates and liquidity. But this mother of all trickle down tricks has not trickled down to anyone that isn't in the top 1%. So it should come as no surprise, that wages have not grown with the expense of everything else.

Volume has dried up and now there is ample evidence that there is another group of buyers who have come in to replace those who have left. And they are the Central Banks themselves. What kind of fair market system has the central banks buying  s and p futures??

We already know our own Fed has bought near $4 trillion in us gov bonds, and we have the slowest, weakest recovery from Recession in the history of keeping those records.

With volatility near non existent, did you ever stop to wonder how " odd " that is? Even with world unrest, all seemingly is going unnoticed. Seemingly. Hedge Funds for the most part have done very poorly in this environment, because they are a " hedge" against volatility. But here we have none.

This period of immunity from declines will come to an end. The gaming accord of the central banks is said to end this year. I feel volatility will return in the not too distant future, and with it much lower stock prices.

At some point, there will be reversion to the mean, and the mean is nowhere in sight!

D

Market Oversold

The market is due for a rebound, but there has not been the type of selling that usually mark short term bottoms. The VIX has also not shown the kind of fear that would suggest a washout has occurred.
Though Fridays rebound was welcomed, I don't think this is the start of a new advance to higher highs.
Let's keep an eye on the Transports, as they have fallen faster than the Dow or SPX. Any return to new highs that doesn't bring all along would be reason for additional caution.

The same markets in  California that got overheated are at it again. Partly could be due to less inventory.
Several radio ads run all day for seminars showing you how to FLIP HOUSES!!! De ja vous?

As long as interest rates remain low, that leaves little competition for stocks . I am unsure if this will remain a backstop as FED continues to back away from the QE. Usually interest rates rise in a  bull market showing strength in the economy and demand for credit. And also re supplies the ammo needed to inject life into a flagging economy.

Not so this time.

IS IT TIME TO WORRY?

Has the long awaited correction finally come?  Is the Bull Mkt Top in?

I am not sure if there isn't one more strong  push to try to make new highs left. But I am pretty sure a correction of at least 10% has begun. August is usually not a great month for stocks historically.

As the market had made its new highs, the % of stocks following along had continue to drop. The VIX did not show any fear at the new highs, so there was plenty of complacency and there certainly was not any wall of worry to climb. No bull mkt let's all ride for free like this seems to have most of the way except at its early inception back in 2009.

My own indicators have signaled extreme caution as they have risen to new extremes, but a sell signal has not been given. Nothing is full prof, but the backdrop now has then FED backing away in its bond purchases and we are into our 5th year of zero interest rates. It is interesting the FED continues to signal this policy will continue for a long period of time even as we reach employment goals they had set out and recent GDP showed 4% robust growth. What's the worry still ?

My worry, is and has been, that continued market and interest rate manipulation will have its backlash day. And as valuations have risen to near extremes, It points to me it may be time to switch to a more defensive strategy.

I agree is does not make any sense to try and time a 10% correction! or any correction in an ongoing Bull Mkt, but when one starts to show its age, when a Bear Mkt is upon us, declines will exceed 20%.

With the FED already sitting at zero rates , I also worry when the time comes to assist the market and economy, they will be sitting there with no arrows to shoot!

D

OVER STAYING YOUR WELCOME

Excerpt from Doug Noland at CBR in PrudentBear.com

" Importantly, the willingness to adopt an open-ended approach to the third round of QE has been viewed throughout the marketplace as the Fed (in concert with the global central bank community) having adopted a regime of boundless securities market support. This has profoundly affected market perceptions, hence securities pricing, with the greatest impact upon the traditionally higher-risk segments of the corporate and “structured finance” securities markets. 

Stated somewhat differently, the collapse in risk premiums – risk asset price inflation – is this inflationary cycle’s greatest market distortion. Indeed, I would strongly argue that unprecedented liquidity injections coupled with implied (ok, explicit) central bank market backstops has inflated the biggest Bubble yet. Any semblance of a “neutral rate” – or a stable securities market “equilibrium” – would require that central banks extricate themselves from the securities market liquidity and backstopping business. Good luck with that."

The mispricing of risk assets poses a greater threat than a slow down in economy . 5 years AFTER the financial crisis and the FED will not raise the FED funds rate?

This back stopping the stock market has led to a can't lose investor mentality. The VIX, volatility index, on a monthly basis is near record lows, showing little fear of an impending market top or losses.

It's been awhile since I last posted, mostly as the tune hasn't changed, mine and theirs, and my own business has been bombing. Perhaps I should thank the FED, and not criticize.

If a new crisis does arise before the FED has brought back interest rates to a more neutral stance, they will have little in the way of bullets to use to help ease the pain. And just look back and see how much faster prices fall, than rise.

Buyer at these levels beware.

D

" GOOD LUCK WITH THAT"

Excerpts from prudentbear.com credit bubble report Doug Nolan

From Nolan

"The Fed did succeed in rejuvenating strong Credit growth. Q1 2014 NFD was reported at a Seasonally-adjusted and Annualized Rate (SAAR) of $2.113 TN – with NFD growth now above my $2.0 TN bogey for two straight quarters. Considering the degree of Credit expansion, the performance of the economy has been most unimpressive (Q1 GDP up SAAR $11.7bn). I’m further troubled by the composition of the recent Credit expansion. Over the past six months, the $2.0 TN bogey has been achieved with federal debt growth of SAAR $1.1 TN and total Business borrowing at about SAAR $940bn. I would argue that large federal borrowings coupled with corporate debt funding M&A and stock buybacks (“financial engineering”) provide the real economy little bang for the Credit buck. Indeed, the massive inflation of Fed Credit has chiefly fueled dangerous speculation and runaway Bubbles in securities and asset prices. The divergence between inflated asset prices and deflating fundamental prospects now widens by the week."

And " good luck with that"

"The European Central Bank’s plan is to lend to banks specifically to finance loans to business and the real economy. Good luck with that, with feeble return prospects in the real economy paling in comparison to outsized speculative returns so easily achieved in manic securities markets. "

**** let me add! nothing wrong with playing along with their game! making money long! but key point for us I do believe , is we have known from the get go how this would be achieved , and furthermore understand price to pay when party is over. That none of this is real, and all the ammo 

used to even get what we have, is sad because as stated, the money doesn't get into then REAL economy, good luck with that.

So when music stops, has it already in Europe....go ahead lower rates to below zero....good luck with that.

BUBBLE REPRISE

So here we are, now well into 2014 and the S&P500, Dow, and Transports are at new all time record highs. Only the Utility Index has been lagging behind, diverging can we say. Not much to worry about , right?

It's not my place to recommend stocks , or if you should be long or not. All I can doesn't lay out the landscape I see and ponder what might be next. I can see a SPX at 2200 by years end, or I can also see  a top to market InThe Sept/ Oct timeframe. But even at new highs, the market is a beneficiary of the FEDS money printing schemes. And those who keep bidding the market higher feel invincible to any serious decline. The FEAR,or the wall of worry to climb don't exist.

The moves have been beyond historic, in 2009 the Transports were at 2100, now near 8,000. ThereHas never been another 5 year period like this.

All good things do finally come to an end, and I still believe that a large part of this bull mkt will be retraced.

On this weekend, my last thoughts go out to all those who have friends or family in the military and to those who have lost someone in battle . Thank you to all those who fight for our freedom and who have the ultimate sacrifice.

D

Musical Chairs Continue

"I see ample ongoing confirmation of the “Granddaddy of all Bubbles” thesis. The stock market is reminiscent of 1999 – except today’s excesses are more broadly based (and the risks much greater!)

But with central banks still pumping and speculators still leveraging, the mirage of unending cheap liquidity (and central bank backstops!) ensures everyone buoyantly dances the night away. I’m convinced that the ’08/‘09 crisis would have been less damaging had markets begun discounting the changing environment back when subprime first faltered in early-2007. Instead, Fed accommodation spurred another year of “terminal phase” excess and attendant distortions.

These days, “accommodation” doesn’t do justice to ongoing unprecedented monetary stimulus, which ensures that manic equities and Credit markets completely disregard major fundamental changes in the global landscape. China doesn’t matter. Ukraine and Russia don’t matter. A conspicuously underperforming U.S. economy doesn’t matter. The approaching end to QE doesn’t matter. An alarmingly deteriorating geopolitical environment doesn’t matter. As they say, “It doesn’t matter until it does.” Yet, through it all, don’t lose track of an important fact: They all matter – and together they will matter a great deal.  "

http://www.prudentbear.com/2014/05/serial-booms-and-busts.html#.U2Tn5dq9KSM

As Doug writes, nothing matters until it does. There is no fear in the market and no options for investors. 

D

Trickle down and QE easing has worked misracles?

"According to research from Redfin, a Seattle real estate brokerage firm, only 49% of homeowners say they are in a "financial position to sell" their homes right now. That leaves 51% who aren't ready to sell, for a variety of reasons.

NEW YORK (TheStreet) -- Eyebrows were raised all over Wall Street this week, and likely on Main Street, too, after the U.S. Commerce Department released its single-family home sales figure for March.

The news wasn't good for the real estate market, as sales fell by 14.5% for the month, and 13.3% against March 2013 figures.

Economists had estimated March residential homes sales at 450,000, but the market saw only 384,000 homes move from seller to buyer.

http://finance.yahoo.com/news/home-sales-fall-because-sellers-150000710.html

The BULL S market may have longer to run, higher to go. But from above stats, and others like people dropping out of the labor force to keep record low participation rate.....things may not be what they seem.

Even the new Pontif in Rome commented on the " trickle down" economics which he questioned was bringing equality to the world. NO, the current environment is bringing the largest gulf between the haves and nots and I think something is going to give down the road.

For a large percentage of people, maybe it seems like it is business's as usual. There is nice activity in certain sectors, but at same time many retail stores are closing locations, pulling back.

I think all the actions, now 5 years in, are part of a GRANDE experiment perpetrated by just a few people. Zero int rates still leave 50% of those wanting to sell their homes unable to do so.

Mortgage rates of 4.3% are said to be HIGH, and a culprit to slower sales.....need I add more?

Duratek

History tends to repeat

From weekend  Doug Noland

"It would be appropriate these days for the Fed to be under intense scrutiny. But with securities prices basically at all-time highs and “The Street” again showered with “money,” there will be no tough questions from the Big Apple crowd. I was struck by the following sentence from Yellen’s talk: “Fundamental to modern thinking on central banking is the idea that monetary policy is more effective when the public better understands and anticipates how the central bank will respond to evolving economic conditions.” It’s a ruse to suggest “public” understanding. Monetary policy has evolved over the years to pander directly to Wall Street and the financial markets. Everything – talk of unemployment, inflation, QE, forward guidance – revolves around maintaining market confidence"

Since the end of 2008 into 2009 the FED adopted a ZERO RATE policy in attempt to bail out financial markets and the banks. Now, here it is into 2014, and the " recovery" is NOT strong enough to begin to normalize rates?? 

Once tagged to unemployment rate, the FED recently disavowed that connection as a timeline to begin to normalize their rate policy, as we are within .2% of reaching their goal.

I have said before, and will again, how in the longer run, will forcing " everyone into the pool" of risk assets in desperate searched of returns, be a prudent policy when all is said and done? There is no free market that I see, and any mention of normalizing anything sends stock holders to the exits.

So, is this zero rate policy a permanent back stop? Will every speech by FED continue to be parsed into single words to extract life changing information .

Maybe too much has been made by HFT, and the anonymous computers that do more than half of the overall volume each day. It seems like the action is rigged for the players , but not for those forced into it with no reasonable alternative.

Being in the market during this back stop period has proved to bed a safe and rewarding decision.but my problem with all this is, artificial means cannot lift all boats for eternity and as always, like in 2000, and 2007, there will be a high price to pay for such historic manipulation and intrusion into free market system.

If from 2000-2003 we thought we saw lowest interest rates since Great Depression and very aggressive FED action to what was at the time a problem  segregated to the tech sector. Became a problem to the overall economy and financial sector as these same FED and govt regulators saw no problems breeding from holding rates down so low for 3 years.

Now we know what happened, this rate fixing and FED unnecessary meddling caused an even BIGGER problem that almost took down the banking system!!!! Worldwide!!!!

How did they respond in 2008-2009? They began an even greater historic intrusion and launched its zero rate policy, QE, and all kinds of games to bring us back from the brink. And maybe it worked to avoid another Great Depression.

But eventually the PIPER must be paid, and you cannot keep the patient on LIFE SUPPORT forever. You cannot create prosperity by printing money.

The top 1% see the FED as god. During this DEmocratic, BS for the people Administration, the divide between those top earners and everyone else grew exponentially.

Still nearly 18% of homeowners are under water in their mortgages. The vast majority of Americans have saved less than $30,000 for retirement.

If those who quit looking for jobs were counted, according to A Gary Shilling, we would have 13% unemployment.

Obamacare has NOT brought down the cost of healthcare, but helped fuel it's increase cost. Allowing  more competition from. State to State probably would have. Then you could update the few positives from ACA into policy and wouldn't need 2500 pages to explain it, or add 10,000 new FED employees to enforce it!!

There is opportunity out there, the economy always has some kind of engine even in the worst of times.OK, give FED credit for helping to avoid the worst of what it could have been back in 2009, but by continuing these policies well into 2014, there is NO doubt here they have LONG overstayed their welcome and like in the last bear market, there will also be a price to pay for all that they have done.

I could not find a time in history, where back to back bear markets separated by a cyclical bull reached LOWER LOWS, like in 2003 and 2009 lows.

IMHO, this suggests a real possibility, we are STILL in a long term, secular, bear market. It will resume with swift, hurtful consequences for the general public who will sit by, as always and do nothing to get out of the way.

We are all waiting for that brave new world, and next GREAT bull market and economic expansion that when the pain is paid and the dust will one day clear. There will be a true next great expansion, probably based on technology and energy advances that lead us into the future .

The trickle down economy, based solely on rising stock prices, will hopefully be once and for all dispelled.

Most small investors buy high and sell low, in the coming months and years, will that be you again?

duratek

Squeezing the last 10%

From Doug Noland at Prudent Bear . Com

"Everything is just so much bigger than before: The Fed’s balance sheet; PBOC international reserves and the Chinese Credit system; the leveraged speculating community; the big “macro” hedge funds; the powerful “quant” funds; the sovereign wealth funds; the ETF complex; the big mutual fund companies. As history has shown, epic financial Bubbles by their nature spur a concentration of financial power. I often ponder how a marketplace dominated by big players tends to function differently than traditional decentralized marketplaces. Then I contemplate how such a “centralized” marketplace operates with assurances of ongoing central bank support. In my mind – and I see evidence for as much in the marketplace – the markets become more of a game, more speculative and increasingly detached from fundamental prospects."

Though this current Bull market may have further to go, it is more likely that it is in it's final stages of life. And I wonder why the FED feels it necessary to continue with its zero rate policy 5 years after it began, further punishing more conservative savers.

It seems more lucrative for companies to use their cash for stock buy backs , than build plant and buy equipment.

At the same period of time we find the highest level of Millionaires, we also find most citizens do not even have $30,000 saved away for retirement and many don't even have $1,000 in savings.

Things are anything but cut and dry my friends in the real world.

D