About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Monday, December 10, 2018

SPX -- Where's The Holiday Spirit?

Both the US economy and the global economy at large should experience further slowdowns next
year and SPX earnings estimates are being clipped. Today, on an intraday basis, the market tested
critical support at 2600 before rallying up from it. My analysis of a host of intermediate term
indicators plainly suggests that the SPX is vulnerable to further downside before a less risky
long side trade would be warranted. But, and call me a sentimental old fool, 2018 was a good
year for the US economy and though there are well known risks for next year, it is outre in my
view to have the market break lower over Christmastide for God sake. Let's have a nice holiday
season and salt the worries about next year away until January. SPX Daily

Sunday, November 25, 2018

Stock Market update -- Fundamentals

The US economy is showing numerous preliminary signs that a slowdown is dawning. As well,
the various leading eco. indicators have been losing positive momentum since early this year
and this steady trend signals a slowdown of growth ahead. My analysis finds nothing serious
yet and I conclude it is premature to talk about a recession. But there maybe a pronounced
downturn in the expansion ahead and critical as always will be inventory management by all
levels of business. The supply management software is there to provide comprehensive and
timely inventory data right down to mom/pop businesses. What I watch in the short run is
inventory to sales data and any signs there may be inventory speculation underway. With
inflation still modest and with short rates even for prime borrowers now running at least 2%,
there is sufficient reason avoid speculation and manage working capital carefully. 'Wolf at the
door' recession scenarios do not seem appropriate at this time.

However, a pronounced economic slowdown will have an adverse impact on profit estimates
and I think the market has already started the process of discounting more modest growth in
business profits as the US appears set to join a global slowdown.

Whether the recent stock market correction is sufficient to allay most fears is hard to say, but
it is tougher to expect strong and sustainable price rallies when market players are concerned
the longer term direction of profits growth momentum may be more sluggish than recently
thought likely.

The Fed is coming under increasing and substantial pressure to slow or even halt its policy of
tightening credit via hikes in short rates. If the Fed succumbs to the pressure, it may trigger a
'relief' up leg in stocks, but such an event will only serve to complicate the Fed's job later on
when a final stage economic expansion may develop. You also need to keep in mind that the
Fed still seems intent on shrinking financial liquidity via downsizing its balance sheet.
So far, the possible deflationary impact on p/e ratios from this  era of liquidity tightening has
been displaced by large fiscal stimulus and deficit budget financing. but without additional fiscal
loosening measures, the quantitative tightening under way will re-assert itself with probable
negative effects for the various forms of risk capital to occur down the road.

A heavy duty trade war with China will be broadly economically destructive. Let us hope that
the principals can finesse the situation, but I suggest you keep in mind that neither Xi or The
Donald are the sharpest knives in the drawer by any stretch.

Sunday, November 18, 2018

Stock Market Update -- SPX Chart

I'll tackle the fundamentals later in the week, but let's look at the chart first.  SPX Weekly

The market just closed a touch above the long term trend line going back to 2009. So, it is still a
cyclical bull of long duration. However, the important trend up from early 2016 has been
broken, and that uptrend marked the third wave up for the market since 2009. So, by my
reckoning, it remains to be seen whether the bull may soon run out of gas or whether there is
some sort of bonus round up in store.

Note that the 40wk. m/a of the SPX has recently turned down for the first time since the second
half of 2015. There can be sudden whipsaws here, but a downward shift in the 40wk. m/a often
signals further weakness lies ahead even if it is not especially dramatic. The market is oversold in
the short run, and sentiment is rather bearish. So, there could be a bounce ahead, and looking at
the stochastic in the top panel, there is reason for optimism in that positive turns in this measure
after it reaches a low point often do signal a bounce. Naturally, there can be a whipsaw here, too.

There are still plenty of players out there who do not see a cyclical top in this market until some
time next year. To accomplish this, the negative downtrends in SPX momentum since earlier this
year, as captured by the MACD and KST measures in the bottom two channels of the chart,
would have to reverse in a significant positive fashion. Now, to be fair to the bears out there, it is
worth saying that intermediate downtrends in price momentum measures often presage actual
further price corrections in the market.

I have said in the recent past that this has been a lovely ride up from the depths of 2009, and that
this market really does not owe us anything now, given how close we were to true economic
disaster or Armageddon over 2008-09. So, for now I am content to see the SPX trade in a range
of  2600-2850, and I would be delighted if we can make it through 2020 at SPX 2500.

Sunday, October 14, 2018

Stock Market Update

Back in January of this year, I argued that the market was way overbought and that the odds of
continued strong, positive performance were very low. Here we are in October with the SPX
trading a little below its Jan. high.The big premium in the SPX over its 40 week m/a has finally
been wrung out. Long term, the market is still in a positive mode, but barely so. Moreover, the
intermediate term reading of the important MACD indicator is on the cusp of turning down and,
the major supporting trend lines have all been violated. Conveniently, the SPX has just had an
OK test of the 40 week m/a. However, from a technical perspective it will soon need a fresh upleg
to keep the bull intact.  SPX Weekly

From a cyclical perspective, the economy is gracefully edging into the twilight of its expansion
period. The labor market has tightened with skilled workers now at a premium. There is some
idle productive capacity in the system, but we cannot be sure how economic it is. On the plus
side, my short term credit supply / demand pressure gauge is in reasonable balance and banking
system liquidity is in decent shape. Inflation has been accelerating, but the trend has been rather
mild and uneven. Interest rates, short to long term, remain in firm cyclical up trends although
the bond market, ever sensitive to the degree of economic momentum, continues volatile.

Business sales and earnings growth has exceeded expectations this year and with inflation
running mild, investor consensus now has the SPX rising to the 3000 level as the current year
winds down, with further gains projected through mid - 2019. Beyond that point, market
players are considerably less sure of continued progress.

I do not now have a compelling argument to deny the bulls another round of up sweep for
the SPX over the next six to nine months. But do not tarry boys.

Tuesday, July 10, 2018

Stock And Bond Markets

As a long time conservative and highly disciplined markets player, I have to say that both the
stock and bond market are just too rich for my blood. I have some major retirement projects
at hand, but before going, I will leave some commentary on the major capital markets.

I have to say that with the market just below its most long term overbought condition in nearly 40
years, I have been a little surprised that we have not seen a more negative reaction. I do not pretend
to have a good idea of how stocks will behave for the rest of 2018, but I have some suspicions. For
one, I believe the bigger funds are playing the presidential election cycle. This is year two of The
Donald's reign, and in keeping with the cycle, players are expecting a strong positive run later in
2018, with a consensus high for the year of about SPX 3000. I also suspect that most big time
investors expect the current Trump initiated trade conflicts to remain inherently modest and not
escalate into a much larger and open ended trade war with the US vs. China the key players. In my
view China's aggressive mercantilism needs a nasty comeuppance, but Trump may not want to
call in heavy fire on his own position. As The Donald himself likes to say, "We'll have to wait and
see" on this one. The market also does not seem very concerned about a Dem "blue wave" victory
in the upcoming mid term election this Nov. Lord, would such an event shake things up in DC.

The SPX is now currently rising above my estimate of SPX fair value of 2720 to run well into
2019. This is a rather liberal estimate and leaves significant downside for the market if the
fundamentals disappoint expectations. The market has broken its trend line off the 2016 low, but
is still postive above its rising 40 week m/a. SPX weekly  I would have an interest in a long side
trade if the SPX somehow rolls on down to 2500.

By the way, should the SPX enter a strong, late cycle powerful rally up to 3200 by early 2019,
it will have reached bubble territory on my super long term semi-log chart.

Bond Market
Right now, I would not trade the 30yr Treasury in my account below  4%. However, as the
cycle progresses toward an eventual economic downturn, and if the inflation rate is still
modest, that would suggest to me that a fresh recession could again introduce deflation, and
that would introduce a new element of interest for sure.

Gold Price
I am monitoring this one for a long side trade provided the USD falls sharply out of favor.

I plan to return to the blog again in November.

Thursday, June 28, 2018

Gold Price

The gold price has recently entered a sharp downtrend. It is fast approaching an oversold reading
on the important RSI technical measure and may, given its inherent volatility, test intermediate
term support at the $1200 level. A relatively strong US economy, rising short term interest rates,
and more recently, Trump inspired talk of a trade war, have all worked to strengthen the USD.
Sudden dollar strength has weakened trader support for bullion. Gold Weekly

Within a couple of weeks, all markets players may get a stronger sense of whether the Trumpsters
are running a bluff on China or whether They really are ready for a long, long overdue battle
with China over Its mercantilist policies. Knowing Trump, if his crew can establish some headline
trade and investment restrictive programs which do not upset the apple carts but give him some
bragging rights, he may go for that rather than go for the more punishing programs that could
could unsettle the US economy and bring blame to his doorstep. If the tough talk is just a typical
bluff, the dollar may eventually lose some ground and usher in a long side trade in gold.

Wednesday, June 13, 2018

Stock Market Update

Looking at fundamentals and valuation, I see little if anything to add to the 5/21 "Looking Ahead"
post (see immediately below). As I read, I note there is a new conventional market wisdom about
Trump : Namely, that his bark is much worse than his bite. May be. But please note that he has
yet to face a major economic or policy crisis. This guy is eminently capable of fucking up big
time, especially when one of his obsessions is seriously challenged. So if you are in the game,
best pay attention to what he is up to. Now, looking ahead, there could be an issue for the market
regarding the Congressional election this autumn. It would be normal for the GOP to lose seats
in the House and the Senate, although there are a number of Democrats up for re-election in
the Senate this year in conservative and borderline states, so the once popular idea of a "blue
wave" that could sweep the Democrats into control of  capitol hill currently seems less assured.
In the meantime however, the market may experience some angst anyway, as a "blue wave"
would prompt strong, critical reviews of the current pro-business policies in place.

From a technical perspective, the market needs to clear short term resistance just below SPX  2800
some time fairly soon to convince traders that a new up leg is solidifying.  SPX Daily