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 !!!

Saturday, February 25, 2017

A Surprising Change...

Now in my late 70s, I never thought this would happen. I have become lazy. Henceforth, I
will post only occasionally. You know, for several years now, I have been much more interested
in how the US economy would come out of the global depression than how the markets would
do. We are not out of the woods yet, but the US has made substantial progress in stabilizing
the economy. Unfortunately, the socio-political side of the ledger is not in very good shape at all.
We are in for a period of White Mischief as the GOP is set to pander to the wealthy and is
eager to take actions that will create an even larger mal-distribution of income and wealth.
So, social stability could be threatened in the years ahead if a tyranny of the minority lead
by Trump and his 'basket of deplorables' fully gets the upper hand.

Monday, February 20, 2017

SPX -- Weekly

The cyclical bull market remains intact. US business sales have recently accelerated sharply to  4 - 5% y/y and SPX net per share is starting to break out to new high ground. Leading earnings indicators imply rising earnings well into this year, with $130. an ok target, and with analysts now
looking for upwards of $150 in 2018 (assuming a battery of tax reforms are enacted). Inflation
is also on the rise with the CPI registering 2.5% y/y for Jan. '17. The Fed is now behind the curve
and is widely expected to raise short rates again before long. Total financial system liquidity is
adequate to fund the economy, but with business activity now much stronger, there is little excess
liquidity to fund the capital markets. Moreover, the production side of the economy has been
running flat, and if it resumes growing as expected, resources will tighten a little and inflation
pressures could intensify further. The current upswing in business activity is the third one since
the economy began its recovery in 2009 and to sustain it easily in the months ahead without over-
dependence on credit accumulation, both the real wage and jobs growth will need to improve.

Investors have yet to begin marking down the SPX p/e ratio as they should in view of prospective
faster inflation and higher interest rates.

Market players have so far only factored in the positive promises from The Donald when it comes
to allocation to stocks and equity portfolio strategy. That is starting to change as folks watch him
in action. There has been little effect on the stock market so far and for all I know it may stay
that way. But The Donald can be a wild and crazy guy, so be careful.

the SPX is now strongly overbought on an intermediate term basis.  SPX Weekly

Wednesday, February 15, 2017

SPX -- Daily

The SPX is now in short term blow off  mode. It has broken above the well - defined 2016 - 17
price channel and is sharply elevated on the 14 day RSI. In recent sessions, there has been a
breakdown of long side trader discipline with folks simply chasing the market higher. On occasion,
this type of near mindless activity can end very badly in a shorter run context.  SPX Daily

Sunday, February 12, 2017

SPX -- Weekly

My weekly fundamental indicators continue in strong uptrends as they have since Feb.'16 and so
continue to support the now nearly year old rise in the market. Key monthly economic data such
PMI, production and business sales have now also fallen into line. Inflation pressure is on the rise.
It is boosting pricing power but has not yet prompted the Fed to abandon the gradual approach It is
following in setting higher short rates. Liquidity provided by the private sector appears adequate
to fund improving real growth, but the Fed is allowing liquidity to run off its balance sheet, which
is a negative that increases the risk to both the economic expansion and the stock market.

Everyone sets their own parameters, but when the Fed does not have your back, I prefer only to
trade the market and hold long positions only for less than a year. On an historical basis, trend
SPX earnings are not extended, but price is hyper - extended owing to the sharp rise in the p/e
multiple since 2011. That development makes me cautious as well, because throughout history
when hyper - extended bull markets turn down, the declines are invariably strong and fast.

For now, few investors are arguing with an improving economy, rising but not yet threatening
inflation, and a Fed that is moving slowly on raising rates.

The market rise in place since early last year continues, and, on a weekly basis, is growing more
overbought.  SPX Weekly

It is a moderate overbought and may have room to run higher, but the indicators shown suggest
that a pause in the positive action could come soon. At present, the SPX is running about 5%
above the trend line that has supported it since early 2016. keep in mind however, that a strongly
trending market such as we have currently can overwhelm conventional indicators of overbought /

Wednesday, February 08, 2017

Gold Price

Gold economic fundamentals have been mildly positive since early 2016. As discussed over the
past year, the first rally off the 2016 lows in the $1050 oz. area was spectacular, but ended in fiasco
as speculators lost discipline and chased the metal up to 1375. I resumed posting positively on
gold on 12/7/16, and the market has begun a new trend up from the 1140 area. It broke resistance
at 1200 early this month and has gained steadily. The fundamental outlook for gold -- faster
economic growth, rising inflation, a gradualist Fed and dollar weakness remain in place, but so
does Gold's price volatility. The metal is now overbought in the short term. Gold Price

Sunday, February 05, 2017

Oil Price

Well, I have been wondering whether this would happen. The oil price has been trending up for nearly
a year. The current price is just below the post - crash high and the market is not overbought against  its 40 wk. m/a. The strongest seasonal period is just ahead and is set to run through Apr. on demand for the gasoline build for the northern hemisphere peak driving interval. The OPEC / Russia
 production cuts have apparently held and the price did not tank over the seasonally weak
Oct. - Jan. period.  On the flip side, the 52 wk. ROC% is going parabolic. That is suspicious, but is
not necessarily fatal. What is worrisome, however, is that long side speculative interest in the oil
futures market is at a record high, and currently tops levels seen at major oil price highs. All the
money that is programmed to go into the long side of the market may not all be in, but maybe we
are not far off from that level. Oil Price

The oil market's supply / demand picture should gradually improve as 2017 wears on, but with
bullish sentiment so strong at the moment, perhaps their is room for a painful hiccup in the
market before it strengthens further.

Saturday, February 04, 2017

Inflation Outlook

The broad money supply (M-2) has grown rapidly enough over the past decade to underwrite an
inflation rate of about 5%. But realistically, inflation is not generated in a vacuum, and with
economic demand running well below the level of economic supply, there have been few times
since the Great Recession bottomed in early 2009 when inflation, measured y/y, has exceeded 2%.
As all know, the long term direction of inflation has been in decline since the extraordinarily high
levels seen in the late 1970s / early 1980s. That longer term trend line now has the CPI at 2% and
on schedule to zero out by around 2020. The rapid industrialization of the developing world over
past 30 years has created a large capability to deliver goods and services more cheaply.

The future inflation pressure gauges I use rest heavily on the momentum of broad measures of
commodity prices and key measures of capacity utilization. These measures have been signaling
higher inflation ahead since early in 2016 and have intensified recently as global production has
started to pick up a little steam. As well, another and longer term measure of economic demand
pressure that I use suggests higher inflation running out into 2018. Looking out into next year,
it is not hard to envision the CPI in a range of 3 - 3.5% at some point, especially if oil supply
and demand come into better balance.

Soon, the economy may have hit levels where history shows that the Fed would begin to raise
short term interest rates in a more nearly serial fashion. The Fed has begun to run behind the curve
but continues to appear to wish to proceed to tighten policy in a very gradual fashion. The
gradualist approach could well change if the new administration and the Congress do embark on
a program of stronger fiscal stimulus.

Viewed in the longer run, I think it is far from clear that the ongoing trend of decelerating inflation
has ended. The next recession, if it occurs in the next several years, could bring a return of
deflation pressure and create the need for even more radical techniques of monetary easing. I
suspect the Fed is somewhat concerned about that risk even if most investors and traders are not.

You can link to an interactive chart on the CPI here > Inflation Rate 100 years

Friday, February 03, 2017

China Stock Market

It has been little more than a year since I last posted on China. Since then, the economy stabilized
and the bubble induced by official commentary to bull the market had collapsed. China did intervene
in the market to let it down as easily it could, and with fiscal stimulus programs and 10%+ money
M-2 growth, the market made a partial recovery and followed along on up with the US SPX. I
did not trade it despite the 1.35 beta on the GXC China index fund  and stayed close to home
instead. Despite the fact that Trump won the election, the China market rallied along with other
major markets, suggesting that market players are not yet concerned with a US - China con-
frontation on trade. The GXC spdr ETX is reasonable at $70 in a partially washed out market,
but given the elevated beta on the stock has well above average price risk if Trump is not
bluffing and battles China on trade policy. GXC