tag:blogger.com,1999:blog-122222022024-03-13T00:36:12.620-04:00Capital Markets & Economic AnalysisI have ended full text posting. Instead, I post investment and related
notes in brief, cryptic form. The notes are not intended as advice, but
are just notes to myself.Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.comBlogger1777125tag:blogger.com,1999:blog-12222202.post-70591925704314929442021-03-08T18:02:00.001-05:002021-03-08T18:02:33.141-05:00Quitting Time, Finally<p><span style="font-size: small;">It is high time I packed it in. I have been doing the capital markets and economic stuff for 55 years. </span></p><div style="text-align: left;"><span style="font-size: small;">I have not seen all there is to see, but I have seen all I have wanted to see. As this economic</span></div><div style="text-align: left;"><span style="font-size: small;">recovery proceeds, cyclical pressure factors are beginning to creep in. As chatter about another </span></div><div style="text-align: left;"><span style="font-size: small;">economic depression recedes, discussion about the strength of the recovery, and whether it will</span></div><div style="text-align: left;"><span style="font-size: small;">be a spectacular boom / bust affair or a lengthy one, and whether there will high or modest inflation,</span></div><div style="text-align: left;"><span style="font-size: small;">dominate discussion presently. Sounds to me like a good time to step out. If I had to be in this</span></div><div style="text-align: left;"><span style="font-size: small;">business today, I would play the commodities market. It is overbought in the short run, but the</span></div><div style="text-align: left;"><span style="font-size: small;">CRB Index is about 40% below fair market value in more nearly normal economic times.</span></div><div style="text-align: left;"><span style="font-size: small;"><br /></span></div><div style="text-align: left;"><span style="font-size: small;">Best of luck.<br /></span></div><div style="text-align: left;"><span style="font-size: small;"> </span> <br /></div>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com10tag:blogger.com,1999:blog-12222202.post-28051461808720973882021-01-21T21:18:00.000-05:002021-01-21T21:18:09.124-05:00Of Stocks And Bonds<div style="text-align: left;">The recent sharp rise in the stock market has forced me out of the game and not just to the</div><div style="text-align: left;">sidelines. For example, the SPX, now trading above 3800, would have to fall by more than</div><div style="text-align: left;">1,000 points to attract my interest on the long side. I would not hazard a guess how it will</div><div style="text-align: left;">do in the near term, but it would not surprise me to see it trading at the current level in three </div><div style="text-align: left;">year's time. At this point the SPX is already overbought and hyper-extended not only on a</div><div style="text-align: left;">long term basis but in the near term as well. It could be just in a speculative blow-off stage,</div><div style="text-align: left;">but it might be in a bubble, with Lord only knows how much upside is left and eventually</div><div style="text-align: left;">with big downside as well. There is talk of a new valuation paradigm which all players will</div><div style="text-align: left;">have to live with, and in the unlikely even such is so, then I have done my last long side</div><div style="text-align: left;">trade. The bullish talk continues to be inspired by the huge glut of monetary liquidity in</div><div style="text-align: left;">the market which is keeping short term interest rates near the zero-bound and is seen as </div><div style="text-align: left;">forcing money into stocks.</div><div style="text-align: left;"><br /></div><div style="text-align: left;">I did participate rather fully in the greatest bull market in bonds in US history. For years on</div><div style="text-align: left;">end, it was like shooting fish in a barrel. But I have not done any long side trades in bonds</div><div style="text-align: left;">since the long Treasury fell below 3.5% in yield. with long term inflation risk of at least 3%,</div><div style="text-align: left;">I am still out of bonds, and even though yields are rising on a cyclical basis, I will stay away</div><div style="text-align: left;">until the 3.5% threshold is met. <br /></div><div style="text-align: left;"><br /></div>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-30744676722241861912020-11-16T17:50:00.000-05:002020-11-16T17:50:08.336-05:00SPX At 3627<p> The variety of directional market indicators I follow point positive for the SPX. But there are</p><p> also signs that the market is high both on technical and fundamental grounds. The SPX is</p><p>getting very overbought for the intermediate term, is quite overvalued, and is getting hyper-</p><p>extended when viewed on a very long term basis. So, if you are trading or investing, be </p><p>aware that you playing in a very effervescent and expensive market. The rapid acceleration</p><p>of Covid cases may well do more economic damage well into next year and could lead to</p><p>some extensive volatility in the market. The news on the Covid vaccine front sounds terrific,</p><p>but even with high efficacy and broad distribution, the economy will take time to regain</p><p>solid footing. Even if SPX net per share were to hit new high ground of $200 by 2022, <br /></p><p> the market is hardly on the bargain table at an assumed p/e of 18.1x. Moreover, a<br /></p><p> broader and stronger economy by late next year may bring significant inflation</p><p>pressure and rising bond yields. These latter developments could crimp the market p/e</p><p>even if the Fed keeps short rates low to accomodate a move to fuller employment.</p><p> </p><p>I am on the sideline now and it would take a substantial correction to get me interested in</p><p>a long side trade. I sure as hell did not see the "blue wave" I was hoping for, and I think</p><p>the popular view of political gridlock will turn out to prove disappointing for the economy</p><p>and investors. If the Dems do not sweep the senate run-offs in Georgia, times could turn</p><p>very frustrating for a guy like me as I believe the economy needs a substantial overhaul</p><p>if the US is to do well in the years ahead.<br /></p><p><br /></p><div style="text-align: left;"> </div>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com2tag:blogger.com,1999:blog-12222202.post-38703701164348370262020-11-01T17:34:00.000-05:002020-11-01T17:34:04.214-05:00SPX -- Brief Update For The Short Term.<div style="text-align: left;"> The shorter lead time economic indicators point to a moderation of the pace of recovery</div><div style="text-align: left;"> both in the US and abroad, save for China. The recovery in business profits across the US</div><div style="text-align: left;"> and Europe is projected to moderate. This data basically does not include the future impact</div><div style="text-align: left;"> of widespread efforts to contain a new and dramatic upturn in Covid-19 cases. This will be</div><div style="text-align: left;"> a patchwork affair, ranging from countrywide lock downs to more targeted and limited</div><div style="text-align: left;"> controls. However you slice it, the outlook ahead is rather muddied. For the US, the 2020</div><div style="text-align: left;"> national election may play a major role in how the economy plays out. For example, a</div><div style="text-align: left;"> Trump loss and retention of a Senate majority may in effect lead to scorching the earth as<br /></div><div style="text-align: left;"> Mr. Trump just allows the Covid cases to run up while Sen. McConnell blows off any </div><div style="text-align: left;"> chance for needed, sizable stimulus. A "Blue sweep" could ease matters somewhat in</div><div style="text-align: left;"> the near term.</div><div style="text-align: left;"><br /></div><div style="text-align: left;">The SPX is nearing a correction, but is still far from being oversold for the intermediate term.</div><div style="text-align: left;"> It could turn out that if there is a big blue wave the SPX could rally off short term support,</div><div style="text-align: left;"> but if this occurs, there could be considerable volatility anyway as the SPX is far from</div><div style="text-align: left;"> being oversold even after the recent sharp decline.</div><div style="text-align: left;"> </div><div style="text-align: left;"> I have been a registered Democrat for sixty years and am hoping the Dems kick ass across</div><div style="text-align: left;"> the board. <br /></div><div style="text-align: left;"> <br /></div><div style="text-align: left;"><br /></div>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com2tag:blogger.com,1999:blog-12222202.post-43978519399865000972020-09-13T17:57:00.000-04:002020-09-13T17:57:16.131-04:00Notes On Economy & Markets<div style="text-align: left;"><b>Economy</b></div><div style="text-align: left;">The US economy has improved sharply from the spring depression level lows. However there is still</div><div style="text-align: left;">plenty of slack. The business strength indicator has recovered rapidly to the 127 level, but is still</div><div style="text-align: left;">below the 140 - 145 area which indicates solid expansion and strong resource utilization. My profits </div><div style="text-align: left;">measure has continued to improve but is still well below positive. The labor market remains down-</div><div style="text-align: left;">trodden with 30 million people collecting some form of unemployment insurance. The price deflation</div><div style="text-align: left;">measure has eased dramatically, but still signals more business defaults ahead. My leading indicators</div><div style="text-align: left;">signal that a slower rate of economic improvement may lie ahead.</div><div style="text-align: left;"> </div><div style="text-align: left;"><b>Markets</b> </div><div style="text-align: left;">The SPX is still overbought for the intermediate term, but less so. The market trend is still positive.</div><div style="text-align: left;">Importantly, large and broad unweighted measures such as the Value Line Arithmetic ($VLE) are</div><div style="text-align: left;">slightly below the 2018 high, and show clear evidence of market player preference for large cap.</div><div style="text-align: left;">stocks, especially the big techs. I look far more favorably on stocks when the unweighted averages</div><div style="text-align: left;">are leading the market higher.</div><div style="text-align: left;"><br /></div><div style="text-align: left;">The gold price has outperformed the SPX since the spring of 2019 and has beaten the pants off the</div><div style="text-align: left;">"average stock" over the same interval. Gold has gone parabolic as it often does when it is in a </div><div style="text-align: left;">bullish phase. It is technically overbought and awaits further weakness in the SPX to regain strong</div><div style="text-align: left;">favor.</div><div style="text-align: left;"><br /></div><div style="text-align: left;">The US Dollar is technically oversold at present and has started a counter up move on player</div><div style="text-align: left;">concerns that the US economy may well lose recovery momentum in the months ahead. A</div><div style="text-align: left;">slower pace of economic growth would reduce inflation expectations and might also worry</div><div style="text-align: left;">folks about how well the global economy will do. My key indicator for the Dollar is the ratio</div><div style="text-align: left;">of the balance of payments to GDP. That ratio continues to improve, but I think market players</div><div style="text-align: left;">have a much broader macro view of the currency at this time. </div><div style="text-align: left;"><br /></div><div style="text-align: left;">Finally, I am one of those folks who doubt Trump will accept an election defeat. If he loses, there </div><div style="text-align: left;">could be some harrowing moments for the US and its markets. <br /></div><div style="text-align: left;"><br /></div><div style="text-align: left;"><br /></div>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com3tag:blogger.com,1999:blog-12222202.post-5034840074461328102020-08-30T16:54:00.000-04:002020-08-30T16:54:08.767-04:00SPX And The Liquidity Tsunami<p>Well, they have gone out and done it this time. A super easy Fed with help from generous fiscal policy has allowed monetary liquidity to balloon to 40% yr/yr, a historic record. with the economy still depressed, the velocity of money has tanked with the extra liquidity flowing to the financial and capital markets. What's more the Fed is now apparently willing to have inflation move up over the longstanding target to foster a stronger labor market and put an end to the deflation pressure created by the rapid decline in the economy during the Covid lock down phase. Normally,with this kind of stimulus, the US economy would surge for a bit, but with the longer term potential of the economy inherently modest, the eventual recovery of money velocity will primarily reflect higher inflation. If so, we will eventually see higher bond yields, a reduced SPX p/e ratio, and, perhaps a lower value for the USD.</p><div style="text-align: left;">The stock market has been having a party. The SPX has been in a wicked sharp upturn and at a nearly</div><div style="text-align: left;">14% premium to its 40 wk. m/a is sufficiently overbought to render the market unlikely to make</div><div style="text-align: left;">substantial progress over the next six months. But, since we are dealing with such a huge swell of</div><div style="text-align: left;">liquidity, it could, however unlikely, surprise to the upside. By my reckoning, if the SPX moves</div><div style="text-align: left;">above the recent 3508 up to 3800 in the months ahead, we will be in a dangerous price bubble.</div><div style="text-align: left;"><br /></div><div style="text-align: left;">SPX Weekly<br /></div><div style="text-align: left;"><br /></div><div style="text-align: left;"><br /></div><div style="text-align: left;"><br /></div><p><br /></p><p> </p><p> <br /></p>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-47260668842832042512020-07-18T17:56:00.000-04:002020-07-18T17:56:53.333-04:00SPX -- Quickie UpdateThe re-opening of the US economy has been a rather muted success. Sure, business sales and<br />
production have bounced back sharply, and my profits indicator, although still negative on a yr/yr<br />
basis, is improving. Unfortunately, initial claims for unemployment insurance is still running at<br />
an awful 1.3 mil. a week. From a Covid-19 perspective, the economic reopening has been a<br />
disaster, featuring a sharp run-up in both cases and deaths. In states across the south and west,<br />
health delivery systems are being sorely taxed with the risk of humanitarian issues on the rise in<br />
spots like GA, FL, TX and AZ. The rise in cases may well partly account for the rise in claims.<br />
Across the US, many localities face risky school autumn openings because cases are rising<br />
and testing and contact tracing have become less useful. I am not about to speculate on whether<br />
the virus is practically out of control and whether efforts to tame it will cause additional and<br />
substantial economic damage. So, I would not care to speculate on how well the economy and<br />
the markets will do over the next few weeks and months. The sheer large number of dumbfucks<br />
both in office and among the public have cost us dearly health-wise and we can only hope that<br />
common sense will regain more footing.<br />
<br />
The intermediate term trend indicators remain positive for the SPX. It has been range-bound for<br />
a short period of time. The SPX is currently moderately overbought at a 6.5% premium to its<br />
40 wk. m/a. <b><a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=W&yr=2&mn=0&dy=0&id=p14325229204">SPX Weekly</a></b> <br />
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<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-73659569612835360122020-06-22T18:06:00.002-04:002020-06-22T18:09:53.579-04:00SPX -- Update<b>Fundamentals</b><br />
On balance, the US economy is showing a degree of recovery from deeply depressed levels.<br />
Retail sales have come back nicely and output levels have moved up some. My profits ahead<br />
indicator reads -15.4 which is awful but not as bad as at the bottom in 2009. My business strength<br />
indicator (BSI) is a lowly 107.9, which also exceeds the bottom in 2009 (A sound, healthy BSI<br />
runs 140 -145). It remains very concerning that nearly 25 million people have lost their jobs and<br />
that more recent data suggests that more upscale employees are being laid off. As the economy<br />
continues to re-open, many more workers will be recalled, but the upscale earning jobs that are<br />
lost will be very slow to comeback. There is huge slack in the economy, and even though raw<br />
materials prices have been recovering, deflationary and default pressures will continue for a<br />
while. The Fed remains just about fully accomodative, but Congress is juggling the ball here<br />
on fiscal policy with an off-chance there could be a fuck up later this summer. So far, market<br />
players have been letting the 2020 national election ride.<br />
<br />
<b>SPX Chart</b><br />
The recovery uptrend from late Mar. was broken on a correction of a sharp overbought and the<br />
SPX is now in a downtrend which is so early as to be inconclusive. The market is mildly over-<br />
bought against the 200 day m/a, and the negative rollover in MACD bears watching. The<br />
continued high VIX reading implies more volatility. <a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=3&mn=0&dy=0&id=p89095119733">DailySPX </a>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com0tag:blogger.com,1999:blog-12222202.post-12295674147773471012020-05-25T17:43:00.000-04:002020-05-25T17:43:24.370-04:00Economic / Markets FundamentalsMy primary liquidity indicators are strongly positive. This suggests that economic recovery is<br />
not far off in time and it is supportive of the stock market. Based upon accelerating monetary<br />
liquidity, a degree of economic recovery should begin before summer 2020 is over.<br />
<br />
Presently, the US economy is still in a state of deep free fall with the indicators suggesting a<br />
deeply distressed state.<br />
<br />
With mounting sector wide defaults in prospect, further fiscal and monetary rescue efforts may<br />
well be needed through 2020 to underwrite a very strong monetary liquidity trend and assure<br />
the economy of a good shot at recovery.<br />
<br />
Inflation vs. deflation measures remain in the deflation camp, but will switch over to inflationary<br />
if recovery takes hold and strong inventory pipeline filling efforts materialize.<br />
<br />
Eventual economic recovery will put downward pressure on Treas. and top quality bond prices<br />
even if short rates continue at historically low levels.<br />
<br />
Business profits measures are currently deep in the tank, but should improve as economic<br />
recovery takes hold.<br />
<br />
Covid-19 will remain a major wild card especially if economic reopening measures such as<br />
social distancing and personal protection recommendations are flouted by a goodly number<br />
of folks. With vaccines and therapeutic measures not ready tomorrow, the virus could make<br />
a vigorous comeback and throw economic expansion possibilities into a cocked hat.<br />
<br />
The US and other economies are going to need help from Lady Luck if slow, grinding recoveries<br />
are to give way to strong and sustainable expansions<br />
<br />
Consensus appears to favor SPX net per share rising from whatever depths to the $170. level<br />
in 2021. That would put fair value at SPX 2800. Since we're already above that level, I view<br />
the market as uninteresting except for the occasional long side trade should times come along<br />
when obviously bubbly sentiment may falter.<br />
<br />
<b><a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=2&mn=0&dy=0&id=p62046137210">SPX Daily</a></b> <br />
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<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com2tag:blogger.com,1999:blog-12222202.post-92165484369911201372020-05-16T18:16:00.000-04:002020-05-16T18:16:08.843-04:00Let Us Hope The Dumbfucks Do Not PrevailThe US economy could decline by 20+% from peak to trough through the late summer. Even with<br />
an expected bounce back over the last five months of this year, there could be 25-30 million people<br />
out of work on NewYears Day, 2021. SPX profits could be down from $155. a share to $100. by<br />
the time the year closes out. A gradual re-opening of the economy featuring regulations on<br />
social distancing and the maintenance of sanitary places of business may secure a modest rebound<br />
in the economy right through 2021, even with successful vaccination and improved therapeutic<br />
programs. a significant amount of dumb political leadership and reckless individual behavior<br />
could set the US back periodically both in terms of the battle against the virus and in the economic<br />
realm. I hope the clear right wing foolishness we are seeing, even though aided and abetted by<br />
Trump, does not rise to a threatening level. The general public fears Covid-19 and will be cautious<br />
as we proceed. If warm summer air slows Covid's progression temporarily, this summer, then I<br />
hope folks do not let their guard down. The medical experts seem to agree it could come back<br />
with a vengeance in late autumn and this means states have to ramp up testing and contact tracing<br />
as much as they can.<br />
<br />
I remain concerned about deflationary pressure and its effect on debt coverage capability across<br />
sectors of the economy. With the recent large decline in resource capacity utilization, my deflation<br />
pressure gauge has reached the low levels seen during the Great Depression. Possible wide scale<br />
business defaults across the globe could lead to cascades of additional bankruptcies here and<br />
there and keep the large gaps in capacity and elevated levels of unemployment large enough to<br />
retard economic growth for years to come.<br />
<br />
The SPX is now wildly overvalued on 2020 fundamentals and continues to discount a recovery<br />
in earnings power that may not arrive until 2022 or thereafter without massive pro- growth<br />
fiscal policies. Trump is so far out of his depth that should he win re-election this November,<br />
and should the Senate stay in GOP hands, economic and social stability could well be<br />
threatened.<br />
<br />
I have managed money for nearly a half century and have managed to maintain my cool through<br />
all those years. As a New York guy, I know well how vicious this virus can be. So, I have plenty<br />
of emotion now and can only hope folks come to treat Covid as the threat as it is.<br />
<br />
With this rant out of the way, I plan to gather my wits again and face the future as it comes.<br />
Watch over your selves and those who are near and dear.Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com0tag:blogger.com,1999:blog-12222202.post-22242959093988848512020-05-08T17:38:00.001-04:002020-05-08T17:38:32.992-04:00Into The Valley We GoBefore the Covid-19 hit, I had fair value for the SPX at 2800 (16.5 x $170. SPX earning power).<br />
I was a conservative fuddy-dud as the market traded above that level for much of last year, and it<br />
surged early this year, topping out at a whopping overvalued level near 3400. We all know what<br />
happened next. Now, economic downturn be damned, we have the SPX trading again above 2800!<br />
<br />
The global economy has entered a deep downturn and unlike previous such instances there now is<br />
heavy monetary and fiscal support in place to cushion the fall. Here in the US, the powerful rally<br />
off the March low of 2200 reflects investor confidence that the economy will soon begin to<br />
recover, especially since most states have begun processes to re-open local economies after weeks<br />
of stay-at-home /social distancing requirements.<br />
<br />
The re-opening processes do not comply with the guidance offered by the medical experts, and<br />
with the virus case count still rising, the chance that the virus will infect perhaps many more<br />
people here makes these ventures highly risky. Not only could virus case surges crash local health<br />
systems, they could alarm enough people to force states to reconsider their choices and take<br />
restrictive actions which could abort nascent local recoveries and create a national political crisis.<br />
At the least, the SPX ought to pause here just to gauge whether this new nightmare could eventuate.<br />
<br />
Polls show most people want to see the national economy re-open but also show substantial<br />
apprehension about going out into it and risking their health and lives. Well, if there was ever a<br />
time for Lady Luck to smile down on us, this is it.<br />
<br />
The chart link below shows the SPX has reached a critical pass or fail spot (RSI %). The medium<br />
term MACD is improving but still remains negative, and the longer run MACD continues<br />
deeply negative, suggesting that the market's true longer view direction is, if not negative<br />
yet to be decided in the weeks or months ahead. Finally, the SPX is approaching an important<br />
test of its 40 wk. m/a. <b><a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=W&yr=5&mn=0&dy=0&id=p63164819785">SPX Weekly</a></b>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-50996334579122379252020-04-23T17:29:00.000-04:002020-04-23T17:29:15.952-04:00Sotto Voce -- "Acceptable Deaths"Pressures to re-open the US economy continue to grow. Thanks largely to the many Covid policy<br />
failings of Team Trump, the quantum leap in various testing procedures needed to minimize flare<br />
ups in the virus as the economy moves to open gradually and selectively are still absent. A range<br />
of low population density states that are anxious to re-open will, if they proceed, have to do the<br />
random testing as well as the business unit testing 'on the fly'. There will likely be flare-ups in<br />
areas of these states, and deaths will occur. This development will put governors in a very tight<br />
spot as folks come back to work amid fresh outbreaks that may tax smaller regional health care<br />
systems and require heavy remedial action. If the setbacks are not large, selected states may<br />
move ahead with opening plans, and returning workers may be forced to gamble their lives upon<br />
return so as not to lose their livelihoods. These local scenarios will play to a national audience<br />
and increase the tensions and fears of the workforce. Local level safeguards galore will be needed<br />
to mitigate the rising caseload if pressures to return to reinstating 'stay at home' policies rises<br />
sharply.<br />
<br />
On a national level, it would appear to be prudent to attempt to re-open the economy only<br />
gradually and in a very coordinated manner to contain the virus damage as best as possible.<br />
I do not know if cautious, slow programs to return to normal will undermine investor confidence<br />
or whether markets players will 'keep the faith' through a long ordeal. I would not be shocked<br />
to find continuing market volatility that flows from advances and setbacks along the road to<br />
normalcy.<br />
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<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com0tag:blogger.com,1999:blog-12222202.post-31803423158955642652020-04-14T21:54:00.000-04:002020-04-14T21:54:10.331-04:00Deflation PressureI have used an inflation directional pressure gauge for nearly 50 years with good results. It<br />
became a deflation pressure gauge over 2008 - 10 and that is what it has turned into again<br />
recently. Basically, I watch the longer term momentum of commodity price composites along<br />
with measures of economic slack focused on capacity utilization rates. The deflation pressure<br />
gauge is signalling the rapid development of downward price pressure currently. So far, the<br />
readings have not been as serious as in 2008 - 09, but we could still be early in the game. Back<br />
in 2008, the vulnerable credits were short term, such as asset backed commercial paper. Over<br />
$2 trillion in short term credits were wiped off the books back then with large bailouts needed for<br />
finance companies and insurers. This time the weakness is in longer term credits ranked BBB<br />
and lower.<br />
<br />
Here in the US, the Fed has jumped in and is providing massive amounts of liquidity to the<br />
money and credit markets. Companies across a wide range of industries are also drawing down<br />
their lines of credit at the banks. Fortunately for now, banks have maintained ample liquidity, so<br />
there is private sector credit still available to worthy borrowers. On top of that, fiscal policy is<br />
providing credit to smaller borrowers.<br />
<br />
So, as I read through my e-inbox, I see a decent level of investor confidence that the Fed and<br />
fiscal policies will provide sufficient back-stopping to ward off a spiral of deflation induced<br />
debt liquidation .<br />
<br />
This situation still demands close monitoring as programs to open economies may prove far<br />
more complex and time consuming than we can readily foresee, with the consequence that<br />
default risk may increase more rapidly than we now envision.<br />
<br />
My 12 yr. long pressure gauge is also evidencing deflation pressure as few economies have<br />
been able to run flat out for long, with this coupled with the fact that the CRB Commodities<br />
Index is now trading nearly 70% below its 2008 peak. I hope not, but there could be some<br />
debt chickens from way back when that may come home to roost.<br />
<br />
<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com0tag:blogger.com,1999:blog-12222202.post-92232427422173965522020-04-06T18:05:00.000-04:002020-04-06T18:05:36.749-04:00SPX -- Scaling Out Of This RallyEven in a fully traumatic longer term crash, The initial rally can cut the first leg of the<br />
decline by half. That would be around 2800 on the SPX . The 2800 level also would equate<br />
wth fair value under fully normal conditions. We are far from normal times, so it is time for<br />
me to exit and concentrate on what's next at my leisure.<br />
<br />
In Wiley Coyote fashion, stocks recently went off the cliff, and shorter term, forward looking<br />
economic indicators have done so as well. With 'stay at home' orders in effect across most of<br />
the US and a number of foreign countries as well, all in the context of a debt laden global<br />
economy with plenty of economic slack, it does not tax the imagination to foresee the start<br />
of a deflationary depression replete with widespread and enabling defaults.<br />
<br />
Central banks have their windows wide open and fiscal policies are turning very liberal, all to<br />
limit the damage while nations struggle to contain and eventually bring the covid-19 to heel.<br />
As we all know well, this is a tall order for a variety of reasons tied to the ugly nature of the<br />
virus itself.<br />
<br />
Like most everyone, I am hoping for succes over the next three to four months so the 'stay at<br />
home' orders can be lifted and governments can begin the work of re-opening economies in<br />
a way that can minimize future substantial flare-ups.<br />
<br />
As time goes by, popular sentiment to re-open economies will strengthen and leaders will have<br />
to be firm against this blowback lest economies hit the throttles prematurely and crash health-<br />
care systems.<br />
<br />
<b><a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=3&mn=0&dy=0&id=p44095537687">SPX Daily</a></b><br />
<br />
Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com0tag:blogger.com,1999:blog-12222202.post-61319878352994535912020-03-26T17:55:00.000-04:002020-03-26T17:55:52.577-04:00SPX -- Thanks Guys. You Can Take It From HereLast Sunday, I posted that a trade worthy rally in a deeply oversold market was imminent.<br />
I caught it, and now I can sit back and watch the wizards of the financial world work whatever<br />
magic they may have. I am sure that at some point over the next year, there will come a time<br />
when the old cat can catch a canary again. Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com0tag:blogger.com,1999:blog-12222202.post-69544777412892399762020-03-22T17:27:00.000-04:002020-03-22T17:27:53.315-04:00SPX -- Technical UpdateThe market remained in crash mode through 3/20. It has now moved deeply into oversold territory.<br />
Although this is a bear market, The SPX is approaching a trade worthy point based on the impor-<br />
tant intermediate term stochastic momentum measure (second panel on chart link below). When<br />
both measures on this indicator decline below the 20 level, rallies normally ensue, even in a bear<br />
market. This type of situation is fast approaching. And, as you might guess it is not for the faint of<br />
heart. Weekly<a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=W&yr=5&mn=0&dy=0&id=p37531779012">SPX</a><br />
<br />
Seen against the 40 wk m/a, the SPX is as oversold as it has been in years. Note also that the<br />
3/20 SPX closing took out the late 2018 low, thus re-inforcing the concept of an in-force bear.<br />
The bottom panel on the chart is a longer term MACD measure and it also is starting to turn<br />
negative, which is not a good sign.<br />
<br />
I plan to catch up on the fundamentals later in the week. Having hit the 80 mark, I have seen<br />
and have been through nasty periods when illness strikes in epidemic fashion. The current<br />
CO-VID 19 pandemic is personally one of the scarier ones and ranks right up there with the<br />
polio epidemics of the early 1950s. <br />
<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com0tag:blogger.com,1999:blog-12222202.post-56083652247203972212020-02-28T18:02:00.001-05:002020-02-28T18:02:20.188-05:00SPX -- TechnicalThe recent price decline wiped out the major intermediate term overbought and left the SPX<br />
modestly oversold.<br />
<br />
I have fair value at 2800, so most of the substantial overvaluation was also wiped out.<br />
<br />
The SPX remains hyper-extended on a very long term basis.<br />
<br />
The market has decisively broken the uptrend underway since late 2018 but remains positively<br />
extended on a trend from the 2016 low.<br />
<br />
The intermediate term MACD is turning down and speedy positive whipsaw reversals are rare.<br />
<br />
I like an oversold 14 week stochastic as a long side entry point but we are not there yet (See<br />
bottom panel of linked chart below).<br />
<br />
The high volume of the past week signals a level of downside exhaustion.<br />
<br />
Last week's price action is indistinguishable from the onset of a crash pattern, so more cautious<br />
players may look for a bottoming process and not jump in long just because Friday did see<br />
the SPX reverse partially and close up from its low for the day. I make this point because<br />
intermediate term bullish sentiment has yet to be washed out yet.<br />
<br />
<a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=W&yr=5&mn=0&dy=0&id=p04426436894">SPX Weekly Chart</a><br />
<br />
<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com4tag:blogger.com,1999:blog-12222202.post-66622447848995304852020-01-26T17:52:00.000-05:002020-01-26T17:52:14.672-05:00SPX -- NoteBy the end of last week (Jan. 17) The SPX had become sharply overbought for the intermediate<br />
term:<br />
> High RSI and Money Flow, elevated MACD. The market was then over a 10% premium<br />
to its 40 wk. m/a.<br />
> Put to Call ratio had fallen to low levels, signaling excess of optimism (bottom panel of<br />
chart).<br />
<br />
When the SPX is this strongly overbought, history indicates only a 1 in 4 chance long side<br />
players can make decent money over the next 6 - 12 months from the highs recorded.<br />
<br />
With the new corona virus (which carries a pneumonia kicker that can be fatal) as backdrop,<br />
edgy market players are using this new uncertainty to take profits after the recent strong leg up.<br />
It is too early to tell the eventual economic damage from this accelerating disease.<br />
<br />
<b><a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=W&yr=5&mn=0&dy=0&id=p77092581857">Weekly SPX Chart</a></b> Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-77724044519856421552020-01-06T18:06:00.002-05:002020-01-06T18:06:56.791-05:00SPX -- Notes<b>SPX is positive but is overbought, overvalued and hyper-extended long term.</b><br />
<br />
Primary monetary liquidity measures positive and accelerating.<br />
Earnings indicators -- Currently flat to down. Forward view suggests return of positive profits<br />
at some point in 2020.<br />
SPX earning power in 2020 estimated at $170.<br />
Fair value for SPX now 2800.<br />
SPX is currently about 16% above fair value.<br />
P/E premium is at 2.6 multiples above fair value.<br />
Current P/E of 19.1x reflects market player expectations of moderate profits growth coupled<br />
with continuing easy money and low inflation.<br />
Inflation pressure gauges have turned up but only slightly so.<br />
----------------------------------------------------------------------------------------------------------------<br />
Chart shows positive turn in important MACD longer range indicator (lower panel on chart).<br />
SPX is at 8% + to 40 wk m/a. and is approaching heavy intermediate term overbought area.<br />
Contrarian sentiment indicators (not shown) are just below too confident danger zones.<br />
---------------------------------------------------------------------------------------------------------------<br />
Both 2020 presidential race and renewed US / Iran conflict are in phases that are too early<br />
for sensible market commentary and are still too much subject to conjecture.<br />
<br />
<b><a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=W&yr=5&mn=0&dy=0&id=p52506446797">SPX Weekly Chart </a></b><br />
<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-76638923927424117242020-01-01T20:45:00.000-05:002020-01-01T20:45:04.666-05:002020 -- Gateway To The Great WhateverFour horsemen of the economic apocalypse are: high debt, deflation, default, depression. They<br />
were on the far horizon as early as 1981. but easy money, with occasional large help from fiscal<br />
policy, kept them at bay since then save for the major slip up in 2007-08. But, huge central bank<br />
easing allowed the global economy to barely skirt a depression. Even then there were massive<br />
defaults in short term credit which almost did us all in. Since then more debt has been piled on,<br />
mainly at the long end.<br />
<br />
So, the battle to keep the horsemen at bay is monetary and fiscal policy job #1. Bloated central<br />
bank balance sheets have created enormous inflation potential viewed long term. But since<br />
stringent monetary and fiscal policy needed to curb inflation might well set the horsemen free<br />
to roam about the world, gov't policy may well remain on the easy side until inflation finally<br />
accelerates significantly and tilts policy to tightening the reins no matter how gingerly.<br />
<br />
So, as we enter the new decade, fending off deflation and default will be the governing worry.<br />
With global output growth potential modest reflecting demographics and the very limited<br />
sustainable spending power of the vast majority of the masses, gov't policies will have to<br />
figure ways of managing the possibility of further asset inflation (stocks and bonds). On top of<br />
this challenge, there may come a point when accomodative policies wind up having sharply<br />
diminishing returns for growth. Hence, 'The Great Whatever.'Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-78659840236531688892019-10-15T17:51:00.000-04:002019-10-15T17:51:09.188-04:00That's All FolksIn late September, I turned 80. According to Wall Street lore, this counts as a life well lived for<br />
an investment guy. The most important thing I've learned so far about being 80 is the you have<br />
to become more inventive if you want get around decently well. But learning the fine art of<br />
compensating for advanced age is a time consuming endeavor as I am finding out. So it seems<br />
to me like a good time to step out of the capital markets milieu. And, there is the view I have<br />
that both bond and stock prices are bloated and now not interesting. I also think that the vast<br />
gulf between the folks who are financially loaded and the rest of mankind is unsustainable<br />
over time at least here in the US. If I was a betting man, I would say that the bloats we now<br />
see in the markets and in wealth disparity are going to be corrected over time, at least here in<br />
the US. I hope these evening out processes are not born out of economic, financial and social<br />
disaster, but my guess is they are on their way over the next couple of decades come what may.<br />
I wish all the many readers of this blog so long and good luck.Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com4tag:blogger.com,1999:blog-12222202.post-63087649449114121482019-10-13T18:05:00.000-04:002019-10-13T18:05:13.900-04:00Easy Does ItConfronted by weakening PMI data and tightening liquidity in the financial markets, the Fed has<br />
reverted to another QE effort. It will buy substantial amounts of 3 month T-bills at least for the<br />
intermediate term. As the Fed again expands its balance sheet, some funds will invariably leak<br />
into the money supply, likely further adding the growth of the real money supply. This is a plus for<br />
the stock market as is the Trump team's effort not to intensify the trade war with China. These<br />
developments will help the economy although the timing in the shorter run is necessarily<br />
imprecise give the continued deterioration in the US economy, especially in the industrial sector.<br />
The return of QE adds significantly to inflation potential if the economy re-accelerates in growth<br />
in the months ahead.<br />
<br />
The 2020 national election is still more than a year away. The House seems ever more likely to<br />
impeach Trump as soon as it can plausibly do so, but the Democrats still must settle on a<br />
candidate and a platform to put in opposition. As of now, investors appear to favor a moderate.<br />
Trump is presently expected to survive an impeachment trial in the Senate but could still crash<br />
and burn by election day anyway. So, even if the economy revives somewhat, there still may<br />
be some heavy clouds for pundits to grapple with even so.<br />
<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-76363439071705580352019-09-28T20:23:00.000-04:002019-09-28T20:23:01.627-04:00SPX UpdateMy liquidity and economic indicators suggest a very modest rebound in economic performance<br />
in the months ahead. The profit indicators call for SPX net per share to remain flattish at $160.<br />
through year end 2019. Inflation pressure gauges suggest a continuation of quite mild acceleration<br />
in the CPI. The short term interest rate directional is consistent with further downward pressure on<br />
the 3 mo. T-bill rate. The SPX remains very over extended viewed long term and is still in over-<br />
valued territory. The risk / reward profile is improving slightly as the danger of imminent recession<br />
has eased somewhat. Longer term economic potential is still down - trending as it has been since<br />
early 2018. China vs US trade issues may well continue to command attention in the months ahead.<br />
It is still too early for the 2020 national election to sharply influence market behavior but it may<br />
add significantly to market volatility next year. I have current fair value still at SPX 2650.<br />
<br />
The SPX is still in a long running cyclical bull market. Looking a little shorter term, it has broken<br />
the original uptrend from the late 2018 and is presently adrift. The market is not overbought, but<br />
momentum has been fading, and failure of the MACD improve in the next few weeks would be<br />
disconcerting. For right now, let's call it a "Ferdinand" bull. <a href="https://stockcharts.com/h-sc/ui?s=%24SPX&p=W&yr=5&mn=0&dy=0&id=p63883210739">SPX Weekly</a> <br />
<br />
<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com0tag:blogger.com,1999:blog-12222202.post-19709696530616619102019-08-11T18:00:00.000-04:002019-08-11T18:00:01.533-04:00Long Treasury BondTo gauge direction of the long guy's yield, I watch the momentum of industrial production and the<br />
trend of sensitive materials prices. Both have been falling over the past year in a softening world<br />
economy, and the bond yield has followed suit. The long Treasury price is very overbought<br />
short run, but until there is evidence that the manufacturing side of the economy is firming up on a<br />
sustainable basis, high quality bond yields may stay distressed. My weekly fundamental cyclical<br />
indicator remains modestly weak measured yr/yr reflecting the significant slowing of growth and<br />
the fact that basic industrial materials prices are down sharply over the past twelve months.<br />
<br />
I have not been interested in the bond market for quite a while as I think yield premiums for such<br />
factors as long term inflation expectations, duration, and future supply have all been whittled<br />
away over the course of the very long bull market for bonds. Back in late 1980 and 1981 the<br />
group I led was a major buyer of Treasuries. We even got several calls from the Fed inquiring<br />
about our health. Back then, Treasuries were yielding nearly 14% and BBB utilities were up at<br />
about 19.75%. US dollar pay CDs of Canadian subsidiaries of large US banks offered 21.5%.<br />
I thought that was all crazy. I could buy high quality bonds that yielded more than many companies<br />
could earn on book equity. Some Wall Street bond gurus had yields on Treasuries going to 25%!!<br />
Well, I think we are at the other extreme now, what with the new generation of gurus calling for<br />
zero coupon long Treasuries if the US economy weakens into recession. Lots of luck with all<br />
that . For me, it's sayonara to bonds.<br />
<br />
Chart for the long Treasury yield.<a href="https://stockcharts.com/h-sc/ui?s=%24TYX&p=W&yr=5&mn=0&dy=0&id=p19558133010"> TYX weekly</a>Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com1tag:blogger.com,1999:blog-12222202.post-39847285642721158642019-07-14T18:01:00.000-04:002019-07-14T18:01:39.067-04:00Key Economic Factors For The MarketsThe growth of monetary liquidity has been shrinking until recently. The shrinkage was severe<br />
enough to force the US economy to rely on private sector funding to underwrite growth. Recently,<br />
the Fed has backed away from its policy of strong liquidity tightening, which was adopted to<br />
reduce the mammoth increase in the size of the Fed's balance sheet (Fed Credit) and the flip side<br />
swelling of excess bank reserves. Fed Credit is still so large as to represent a major long term<br />
inflation threat, but with the economy slowing down to a crawl, the Fed has decided to relent for<br />
now. Liquidity growth is improving, but only mildly so, and is not yet nearly strong enough to<br />
support more than a very mild resumption of economic and profits growth. Faster monetary<br />
liquidity growth now seems inadequate to fund both improved economic growth <b>and</b> sustainable<br />
rallies in the capital markets.<br />
<br />
The Fed is clearly leaning toward reducing short term interest rates before too long, but take<br />
note that Wall Street is particularly bad at guessing Fed intent. If the Fed moves to cut rates<br />
in the weeks and months ahead, there could be an additional shot of liquidity to the system as<br />
as the Fed moves to assure an orderly transition to a lower rate structure. In this event, stocks<br />
could receive an additional mild positive jolt.<br />
<br />
On the other parched palm, if the Fed opts to toss caution to the wind and run with a more<br />
liberal policy, the US Dollar will sink in value and the long dormant commodities market will<br />
likely perk up. The gold price would receive a nice boost while the bond market could weaken<br />
sharply, leading to a return to a distinctly positive yield curve that would no doubt surprise<br />
folks.<br />
<br />
The performance of the US economy in 2019 has been dicey and it is not clear now whether<br />
an easing of the monetary reins will be sufficient to assure that the US economy will firm up<br />
enough to satisfy expectations built in to the new, lofty level of share prices. Such may well<br />
be the case if the Fed keeps liquidity growth mild and does not open the tap as it might if a<br />
full fledged recession needed to be tackled.<br />
<br />Peter Richardsonhttp://www.blogger.com/profile/04431581914942742085noreply@blogger.com2