Last August, the US Fed stopped creating new currency out of thin air and dumping it into the banking system. Which is another way of saying the US money supply stopped growing. Here’s the adjusted monetary base — a proxy for the amount of new currency the Fed is creating — over the past eight months: Then a whole bunch of other things started happening. First, the dollar soared, becoming by far the world’s strongest currency. And Americans started buying less stuff: And then US factories started making less stuff: The latest batch of economic reports now implies zero growth for the entire first half of 2015. What conclusions...
Over the past week the non-confirmation in Dow Theory between the industrials (DJIA) and the transports (DJTA) widened. Both indexes have been painting a line for over two months. Now both indexes have broken out of their lines. The problem is DJIA broke upward and DJTA broke down. This creates a non-confirmation that warns of a possible long term trend change in the near future (next several months…remember Dow Theory is about the very long term trend). Until this non-confirmation clears with the transports moving to new highs (and of course the industrials too) investors should be cautious about adding new long positions. On the other ha...
I thought oil would be my superhero today, considering how things started, but it turns out my TBT short was actually the real winner. Interest rates tagged the descending blue trendline I’ve drawn below, and since then TLT has been firming up smartly. TBT, the double-short ETF based on treasury bonds, has been wilting mightily today, and it may well continue to do so into next week. ...
Headline writers were falling all over themselves yesterday to get the news out that retail sales were weaker than the Street conomist crowd consensus guess. The stock market soared as trading algos surmised that this meant that the Fed won’t raise rates anytime soon. There’s just one problem. As so often is the case, the seasonally adjusted headline number was highly misleading. Seasonally maladjusted nominal retail sales were reported to be unchanged in April. The Wall Street conomist consensus was for a modest gain of 0.2%. Nominal retail sales, not seasonally adjusted and not adjusted for inflation (or deflation), declined by $7.5 ...
There is one thing that has always nagged me during the 2nd longest bull market run in U.S. history. Corporations have roughly the same revenue per share today as they did halfway through 2007. And yet, sales growth per stock share has only recovered to the pre-crisis levels of 2007, whereas the S&P 500’s price has vaulted 40% up and above the pre-crisis levels of 2007. While it is true that bottom-line corporate profits have increased handsomely, most recognize that this is a direct function of balance sheet manipulation. When a company purchases back its own shares, it reduces the shares in existence, causing earnings per share to inc...
Fairly early in an investor’s development comes the lesson about covered call writing. The lecture usually sounds like this: “Income can be generated in a flat market by writing calls against assets held in portfolio.” Well, you probably noticed the domestic equity market has been churning on either side of unchanged over the past month. Punditry now abounds with calls for no growth in U.S. stocks. Perfect timing, you’d think, for swapping into buy-write funds. “Buy-write” is industryspeak for a simultaneous asset purchase and sale of associated call options. Take the PowerShares S&P 500 BuyWrite Portfolio...
<< Read Part 1: Why Stock Prices Are What They Are This is the second installment in a series that explains why stocks are priced as they are (or for those who prefer a more precise view, why supply and demand trends for a stock are such as to cause the two to converge at one point as opposed to any number of others). Part 1 introduced the penultimate explanation, to wit, that the price of a stock is the present value of future dividends. That content introduced the core theory that explains stock pricing in terms of the present value of dividends. Relating theory to observable reality can, however, be a challenge. We started by explori...
Following the great financial crisis in which capitalism was almost wiped out due to too much debt, a funny thing happened on the path to recovery (paved with some $57 trillion in even more debt) – Quantiative Easing, that deus ex conceived by central bankers as the miracle tool that would fix the world, stopped working. And it stopped working for a very simple reason. As central banks have scrambled to push risk assets ever higher in hopes of creating that elusive Keynesian inflationary “trickle down”, they are limited in the security they can buy. In fact, most can only purchase government treasurys, which they have d...
Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method. There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are: Industrial Production Real Personal Income (excluding Transfer Receipts) Nonfarm Employment Real Retail Sales The Latest Indicator Data Industrial Production According to the Federal Reserve, “Industrial production...
Consumer confidence is the third miss by economists in a single day. Please consider the Bloomberg Consensus Estimate for Consumer Confidence. Consumer confidence has fallen back noticeably this month, down more than 6 points to a much lower-than-expected 95.2. This compares very poorly with the Econoday consensus for 103.0 and is even far below the Econoday low estimate of 100.5. The weakness, ominously, is the result of falling assessments of the jobs market, both the current jobs market and expectations for the future jobs market. The second quarter, which is expected to be much stronger than the weather-depressed first quarter, isn...