About Me

Retired chief investment officer and former NYSE firm partner with 40 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 !!!

Wednesday, September 20, 2017


Short Rates
The Fed again declined to raise the Fed Funds Rate (FFR%) today. Maybe by Dec. '17 they will put
25 basis points on. There is only modest inflation thrust now and hurricane damage will be a
temporary drag on the real economy. The Fed has also been watching the economy work off very
large excess inventories dating back a couple of years. This cycle will have to run its course before
commercial loan demand finally begins to re-accelerate. Businesses are being a bit more circumspect
with their inventory policies so far this year.

Quantitative Tightening (QT)
The process of shrinking the Fed's balance sheet and the excess reserves in the banking system
 is scheduled to start in Oct. with $30 bil. monthly roll-offs and sales. The shrinking
process could accelerate to $50 billion month as early as some point next year. To get back to
"normal" the Fed will need to have about $2.5 tril. in securities on its balance sheet by late 2020.
If the Fed shrinks its balance sheet by $50 bil. a month, there will still be sizable excess banking
reserves in the system. After 2020, the Fed will have to get more careful with this QT program
so as not to leave the banking system short handed. This assumes that QT works in practice as
well as it does in theory. Risky business? Mais oui!

The Fed has presumably thoroughly studied the liquidity requirements of both the Treasury
and agency markets and has set parameters for when it may have to intervene short term in
the markets as well as whether there may be a sizable increase in daylight overdrafts. Theory
says things may operate smoothly, but in practice there may be spooky short term liquidity
squeezes. Will the markets begin to price in special squeeze risk premiums and could there
be disruptions to the derivatives markets? It may be wise to expect both in the early going. 

Sunday, September 17, 2017

SPX Weekly -- Longer View

In the initial economic recovery surge, US business rose to exceed 10% yr /yr. during 2011. Then
a slowdown hit which ran into late 2015. Volume growth slowed significantly and pricing power
went from 4-5% annually into negative territory. The stock market weathered this seriously
deficient performance because of the huge QE programs from the Fed and a dramatic increase in
earnings capitalization (p/e ratio). Over the course of 2015, the private sector took over from the
Fed and funded the economy. Business began to pick up sharply in early 2016 and the stock market
began a new cyclical leg up. Business sales recovered from negative momentum territory to
finish 2016 at around + 7.5% yr / yr. Very large excess inventories which dogged the economy
in recent years have been pared down sharply and earnings have recovered substantially. Sales
growth momentum, especially in retail, has slowed throughout 2017, but is at a respectable 5%
 5 % Ann. rate given low inflation.

My weekly cyclical economic indicators have been suppressed by recent hurricane damage,
but the trends through 2017 continue to suggest that further growth momentum
erosion is on tap for later this year and into 2018. At present, recently renewed broad strength in
the SPX shows that investors apparently have little concern.  SPX Weekly

The Fed still desires to "normalize" monetary policy via raising short rates further and also via
reducing the size of its balance sheet, perhaps on a systematic basis. We may be about to step
off into new territory from an historic basis. If and when the Fed proceeds on both fronts, it will
usher in era of quantitative liquidity tightening (QT). The banking system holds enormous
excess reserves from the QE programs, and it will be the surplus reserves that are cut. Even so,
if the Fed sells securities and allows others to run off, it will impact liquidity in the markets
negatively. As of today, there appears to be little concern in the markets.

The SPX continues to trend higher, but is approaching another intermediate term overbought on
RSI. Recent overboughts have only slowed down positive price momentum, but be assured some
traders are near to squeezing the sides of their chairs.

Tuesday, September 12, 2017

Market Breadth

The cumulative NYSE advance / decline line has made a new all-time high this week. NYAD Daily
The top panel shows the broad measure VLE (featured yesterday). As seen, it has failed yet to
recover its high, revealing the sharp slowdown in price momentum. The momentum of the A / D
line has also slowed but remains nicely positive (bottom panel). The chart also shows the RSI of
the A / D line. It is approaching an overbought level, which signals the market may be getting a bit
toppy for the short term.

Monday, September 11, 2017

Broad Stock Market

So far the broad stock market (1700+ stock composite) has traversed the seasonally volatile Aug. -
Nov.1 period with minor damage. There has been a hiccup in volatility, and the average stock has
under performed the large cap. SPX, but the broader market has tested its 200 day m/a in an alright
fashion  even if it is not entirely out of the woods on this important measure.  VLE Daily

There has been damage worth noting. Just over 50% of stocks are in confirmed uptrends. That
does not compare favorably with the SPX. Moreover, the broad VLE composite continues in a
lengthy 10 month downtrend in  comparison to the large cap. measure with this development
signalling investor caution concerning the economic outlook running out into 2018. Since my
weekly economic and profits indicators have been stagnant since earlier this year, the caution may
not prove unwarranted. It is also worth noting that unlike the SPX, the uptrend in the VLE has
been broken. At best, that signals the broad market may chart a fresh course which need not
be as positive as the run from early 2016.

Worries, such as some measure of armed conflict with NK, the short term negative impact of
monster storms Harvey and Irma, and political dumpster fires in the nation's capital seem to
have been set aside for now in favor of the longer standing meme of low growth, low inflation
and a high market p/e ratio that has sustained the bull market for the past several years.

Tuesday, September 05, 2017

Stock Market

I am for caution here. With a more a destructive bomb, NK has crossed a line. It is now time to try
to shoot down any further missiles it fires because it is now too dangerous to rely on guesswork
about their nuclear prowess. Who really knows whether they recognize that. Harvey storm damage
could easily reach $200 bil. and there is a an even more powerful storm (Irma) bearing down on
Florida and the coast. Potentially huge storm damage from Harvey and possibly Irma could damage
US capital stock and major relief programs could undermine the vaunted tax reform effort and
increase the complexity Congress may face in setting out a budget and raising the debt limit.
 For the market, September is going to be like watching out of shape middle aged people run
 the 100 meter high hurdles. It can be done nicely, but there could easily be falls, scrapes and

These potentially huge exogenous factors are arriving just as investors are intensifying their studies
of whether to protect portions of 2017 gains already on the books and how best to structure portfolios
for the year ahead.

The market has been struggling to maintain solid, positive momentum since the end of Feb. If it
was way overbought for the short term now, it would be easy to tell traders to book it. But the
SPX is in neutral territory for the short run, so there are likely to be opportunists even despite
some potentially nasty short term fundamental overhang.  SPX Daily

Wednesday, August 30, 2017

The Long Treasury Bond %

The long Treasury bond has been a little tougher to trade since the end of 2015. Last year the yield
was slow to rise despite indications the economy and inflation were both set to accelerate. This
year the yield was slow to fall despite the sharp reversal of inflation. It remains in a down trend
mode currently even though inflation indicators are starting to inch up.  $TXY Weekly

The bottom panel of the chart shows the relative strength of the SPX against the USB (long Treas.
price). As seen, emerging, negative sentiment on stocks pushes asset allocators to rotate out of
stocks and into bonds. Interestingly, the bond has enjoyed the lower inflation so much this year ,
that it has held up relatively well against the SPX through much of the year.

I would rate the bond market as still a bit oversold at present levels. The long Treasury % is over
20% higher than it was a year ago (top panel of chart), and is falling below its falling 40 wk. m/a.
You will note from the chart that changes in the direction of the 40 wk. tend to both confirm trend
and suggest that it has further to go.

Should markets players get nervous about the stock market over the next couple of months,
top quality bond yields may decline more (and prices rise) as stock traders seek a safer haven.

Sunday, August 27, 2017

SPX -- Weekly

Everyone knows this a well advanced bull market where you have to choose the most generous
valuation methods to get even somewhat comfortable. Price momentum has remained positive
but has deteriorated noticeably since the SPX hit a major intermediate term overbought at the
outset of 3/17. Weekly cyclical economic indicators suggest that both the economy and business
profits momentum have probably peaked. On the plus side, continuing low inflation and negative
real short rates have helped the SPX p/e ratio stay elevated. As well, there is a fairly strong
investor consensus that the economy is a good year away from a genuine downturn. Fewer
players are confident that the Congress can pass tax legislation in the months ahead that might
assure a longer run for the business expansion, but hope has not been abandoned totally. Trump
has fucked up royally over the past three weeks via the North Korean flap, the handling of
the Charlottesville demonstrations, and more recently, his vicious verbal attacks on top GOP
operatives in the Senate and the press. Likely tough fights ahead on the debt ceiling, the budget
and tax reform have grown more worrisome by stupid behavior from the White House. So, the
market has lost some ground over August, although there has as yet been no downside breakaway.
SPX Weekly

There may be trouble ahead in September if the SPX fails to get above its 13 week m/a and move
back up toward 2500 right quick as that would signal more extended damage to already shaky price