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 !!!

Sunday, March 30, 2014

Stock Market -- Weekly

The Fed has in effect laid out a plan to return monetary policy to normal operations by
sometime in 2015. This would include elimination of the QE program via the tapering
of asset purchases and the elimination of the ZIRP. Assuming moderate economic growth
over the next 12 months and a degree of cyclical inflation pressure, the Fed will find itself
behind the curve in starting to raise short term rates next year. News of the shift in Fed
thinking has been cumulative and the stock market has been able to muster only a 0.5%
gain on the year through 3/28.

There remains sufficient slack in the US economy to drive economic growth right into
2017. After a year long informal holiday, the banking system is again responding to rising
loan demand, a response that will likely prove essential to supporting economic growth as
the QE tapering process eventually zeros out the inflation of the Fed's balance sheet.

Because the bad winter and so far lousy spring weather retarded growth, it is not clear yet
that the economy can sustain a moderate level of expansion as QE winds down and it is
thus not clear whether the Fed would end ZIRP even by as late as 2015.

If all goes according to the Fed's estimates and plans, the policy of easy money probably
has another 12 to 15 months to run before it officially ends. Moreover, the stock market
has shown a tendency to rise until the yield curve flattens out. A flat yield curve could
well take a couple of years beyond 2015 to develop fully.

The market has lost some players to the QE taper program and it may also be losing
some players who wish to use a better US and global economy to start to diversify away
from US stocks -- the performance bellwether since late 2011. Other investors may
grow cautious because the initiation of a program to boost short rates by the Fed can
produce a classic market correction. The hard core bull cadre will desire to join in
trying to push the market higher until the easy money policy officially ends.

The flattening of the SPX so far this year reflects these crosscurrents as neither the more
cautious of investors nor the bulls have been able to cleanly gain the upper hand. If the
economy performs alright, there could well still be a battle over an appropriate p/e ratio for
the market.

The SPX has lost momentum, the uptrend since late 2012 is getting shaky, the indicators
are fading and the VIX has elevated slightly. Even so, the market has bent but has yet
to show a break. For example, note that down moves of consequence have not occurred
until the MACD structure falls below + 25. SPX Weekly Quite something.

Thursday, March 27, 2014

30 Yr Treasury %

With the spring of 2013, the long bond yield began a lurching move up which defied over 40
years of close ties to cyclical economic factors. The chart of the long guy has industrial
commodities prices in the bottom panel. The market was sensitive as usual to the direction
and momentum of such prices until May of last year when yields surged while the industrials
continued to fade. $TYX

The talk of tapering the big Fed QE program was introduced by Bernanke last spring, and
the long Treas. yield took off as market players, anticipating economic growth sufficient to
warrant a taper and an eventual end to the Fed ZIRP policy reset the yield to begin to
accommodate  a return of the economy and monetary policy to a more normal relationship.

The Treasury yield has come down over 40 basis points this year to date as the market has
returned its attention once again to the cyclical fundamentals which typically govern the
direction of yields over the shorter term. Here, traders have noted a slow start to industrial
production in the States and sloppy sensitive materials pricing.

I am using a range this year for the bond of 3.20 - 3.80%. I have not changed my framework
yet for faster production growth and inflation for 2014  and am content to use a yield range
with less volatility than normal.

Bond yields have run up well ahead of the fundamentals but the eventual direction of cyclical
factors should support firmer yields at some point over 2014. In the interim, traders need to
exercise heavy due diligence as the yield at 3.51% is starting to get mildly on the low side
relative to its 200 day m/a.

Wednesday, March 26, 2014

Analysis -- US Treasury Yield Curve (2 Yr / 10 Yr)

Attached is a link to the  most commonly used Treasury yield curve: $YC2YRhttp://stockcharts.com/h-sc/ui?s=$YC2YR&p=D&yr=3&mn=0&dy=0&id=p15064831307

Strong Slope: 300 basis points (BP) or higher short to long. Robust economy in early stage
when short rates are low and bond investors grow skittish. Generally Positive for stocks.
Flat Or Inverted: Shorter term rates on par with or higher than longer rates. Indicates that
credit / liquidity squeezes  have developed and implies economy in pre-recession mode.
Usually is a bearish indicator for stocks.

The chart shows the positive slope has recovered sharply since the news of and subsequent
implementation of the Fed's very large QE program. The current slope of near 230 basis points
reflects current investor bet that the economic expansion will not substantially accelerate plus a
continuing low inflation rate. The very narrow 120 bp slope in mid - 2012 shows just how
concerned the Fed was about the economy back then and how welcome QE was initially.

The dip in the yield curve in 2014 is a response to the impact of severe winter weather on the economy as well as a firming of the 2 yr. yield as the Fed hints about an eventual end to the
ZIRP program (The prospect of ending ZIRP has had little effect so far on the short end,
but if its specter draws nigh, expect short end yields to rise faster than longs).

Enough economic slack has been consumed in the economic expansion and the tensions
in my short term credit  supply / demand pressure gauge have increased enough to
make study of the yield curve more worthwhile going forward.

Sunday, March 23, 2014

Stock Market -- Daily Chart

The SPX broke off a short term uptrend from its Jan. '14 low and is now drifting sideways.
Price momentum has faded some, but the primary trend remains positive. In late June of
last year, the SPX entered a more volatile phase of its extended cyclical advance. As we
move into the new week,  the current trading band is SPX 1895 - 1805. The market's
flatness in Mar. to date has wrung out the short term overbought and watered down the
intermediate term overbought. SPX Daily

Short term RSI and MACD shown on chart are both drifting lower. Note how MACD has
tended to reverse and head lower when readings get up to or within hailing distance of +20.
Comparatively speaking, the SPX has experienced a disciplined advance since late 2012
with the exception of more volatility through a widening of the trading band.

The 10 day m/a has turned down and is approaching a rising 25 day m/a. Short run players
should pay extra attention if the 10 drops below the 25 m/a.

There is still a chance the SPX is making a secondary and perhaps problematic top since
the index has not yet decisively cleared the prior top area of Dec. / Jan. at 1850.

Weakness in the SPX over the past year has been well contained by the 100 day m/a and
this measure has worked well as a base of support going forward.
This week Obama is off to Europe for a G-7 meeting. Naturally, the gang will be 
discussing UKR / Russ and what they may do if Russ crosses borders with its forces.
To get Ms. Merkel especially to focus on this problem, NATO and White House
officials have today talked up the idea that Russian boys may be ready to attack
further beyond Crimea.

Saturday, March 22, 2014

Gold Price

The gold price did build in a mild "safety" premium as the Russia vs. Ukraine crisis built up
a little steam, but the price cooled recently as there was no military follow through by Russia
beyond Crimea. Obviously, this geopolitical situation could grow worse in a hurry if the
Russians send in armed force to take more territory in the region. Gold at $1338 oz. could
test down to $1320 -25 if the UKR / RUSS situation stabilizes. Gold Price Weekly

Notice that Gold did flunk its first test at resistance close to $1400 over this past week. The
metal remains in an uptrend, but safe haven and / or cyclical bulls need to keep this mind
going forward.

The chart shows the gold price with two longtime favorite travel buddies -- the oil price and
an industrial commodities composite ($DJAIN). The oil price has entered a seasonally strong
period, but there is some supply overhang in oil as unseasonally strong winter demand for
heating fuels winds down. Oil is expected to regain positive footing again as we move further
into spring. Industrial commodities prices have been punished by slower global economic
growth in recent years, but I still look for firming global demand as the year progresses.

Gold did get a little pricey in recent weeks, but there is still a reasonable chance it can advance
for more mundane cyclical reasons.

Tuesday, March 18, 2014

Monetary Policy

Tomorrow is Fed policy day (FOMC). Stocks players are anticipating a policy based 'pep
talk' from Ms. Yellen.

The economy still has resource utilization slack and is coming off a slow winter. Even so,
classical indicators which traditionally govern the direction of short term interest rates are
edging very much closer to suggesting that the time may be near for the Fed to begin to
move the Fed Funds rate % up. The Fed is normally inclined to raise short rates when my
business strength index tops the 135 level. It is now sitting around 132. It has been up here
before during the recovery but during that period, short term business credit demand was
still declining. Not so  now, as my short term credit supply / demand pressure gauge is moving
up in favor of demand, indicating tighter conditions at the short end. This is the first time
during the current economic recovery that all the indicators, including non-financial
commercial paper demand, are in position to signal it is time to raise rates.

If the economy improves further as 2014 wears along, you can expect the hawks who have
pushed for QE tapering will turn their attention to the Fed's ZIRP short rate policy. On balance,
the Fed is likely to stay with its ZIRP policy for as long as it can easily get away with it even
if the economy improves further as now expected. So far, investors have willingly gone along
with the policy. For example, the 1 yr T-bill mostly stayed in a tight .09 - .20% range since latter
2011 even though inflation has averaged well above that miniscule rate range over this interval.

An improving US economy and perhaps an additional bit of inflation pressure may well lead
players to demand a higher yield with the 1 yr "T" eventually moving up to .50% or higher to
signal the Fed that is time for Them to review the ZIRP. 1 Year Treasury Yield

Since there may finally be an economic case to raise rates coming, the issue of 'interest rate
suppression' would at last become relevant. A healthy economy in the long run would
feature a balance of savings and investment rather than the strong emphasis on asset inflation.
With housing prices and the stock market in solid recovery mode and no financial incentive
to save, continued economic expansion  from here should prompt more attention on the issue
of the continued desirability of a ZIRP even if the Fed goes on to suppress rates.  

Monday, March 17, 2014

Economic & Profit Indicators

Coincident Economic Indicator
Measured yr/yr, my coincident indicator is up a paltry 1.2% and remains in a downtrend
which began in early 2010. Surely, the bad winter weather over the eastern two / thirds of
the country into early Mar. punished economic performance, but the continuing lack of
even moderate real income growth remains a drag factor as it has since the inception of
the economic recovery. The US has also experienced a slowing of its export growth in
recent months, which may be more fully explained by the weather.

As the US moves into springtime, the expectation is that there will be faster economic
growth as winter loses its icy grip, but unless businesses pick up the pace of hiring and
start paying better, the economy will struggle to escape the low growth mode.

Business Profits
The economy did experience stronger production in the final quarter of 2013 and even
though pricing power remained rather subdued, profits performed well. Measured yr/yr,
business sales have been sluggish so far in 2014, and with little pricing power, operating
margins (excluding per share indexation from stock buybacks) were probably under some
mild pressure. Since the month is not done yet, maybe business activity will pick up in
the relative absence of severe cold and storms and save the quarter from sluggish readings.

Banking System Credit
Over the past three months, the banks have stepped up lending to a nearly 8% annualized
rate of growth. So if the tough winter has pinched business cash flows, banks have been
willing to step up and meet credit needs. We need to see much more of this if the economy
is to do well as the Fed tapers the QE program

Friday, March 14, 2014

Stock Market -- Weekly

Monetary liquidity growth remains strong yr/yr but momentum is fading as Fed taper program
takes hold. With little genuine historical precedent, this remains enigmatic to me. Sustainability
of market's p/e ratio may be in question.

Inflation rate and short term interest rates are low. Enduring positives.

Weekly cyclical fundamental indicator (WCFI) is trending up. Progress of WCFI since market
low in latter 2011 is intact but trails the market indices by a country mile reflecting dramatic
increase of p/e ratio.

Right ahead we have another FOMC policy outcome (Mar.19) and we'll see more on Putin's
regional mania with possible strong economic repercussions if Vladdy keeps up the push in
Ukraine. Time for the EU to rise and shine. West vs. Russia economic warfare cannot be ruled
out. A full plate for the next week.

SPX commands a mild premium p/e based on cyclically elevated earnings. Risk is higher.

Weekly up trends from latter 2011 and late 2012 still intact, although market is mildly extended
off the 2011 low. Since late 2012, trend has strongly beaten indicators when it comes to the
direction of the market. SPX Weekly

Basic roundtrip in the SPX since YE '13 has allowed the intermediate term overbought in place
to run down to a mild level.

 Failure of the SPX to hold for long above the 1850 resistance line sets up issue of a secondary
or low momentum top which formed earlier in the month. Such can precede trouble but need

Parting Thought
consensus of the press and geopolitical pundits has it that Putin and the West have thought
everything through and that both sides believe they have the bases covered. Don't count on it.

Wednesday, March 12, 2014

Break Time

One of the nice things about being a discretionary trader is the luxury of not having to be
in the markets every day. Some developments are ahead that may involve hazard and or

The FOMC Meeting  is Wed., Mar. 19
This one also involves a press conference and will star Ms. Yellen, the new chair. With further tapering of QE on the table and folks wondering still about Fed intent regarding short term interest rates, there may be some volatility in the markets over the next 5-6 trading days.

Ukraine vs. Russia
Annexation of Crimea by Russia seems to be proceeding. Not all residents are keen on the
idea, so some commotion can be expected. Since this is standard Russian grand larceny
foreign policy, a shit storm of protest would be appropriate. Next, the EU may finally have
to get up off its collective ass and pound Putin with some sanctions of consequence. NATO
also will have to decide on what it should do if Putin has it in mind to swipe more east Ukraine
real estate. More military hardware is moving into the vicinity of the  Black Sea, Poland and
the Baltic. If NATO / G-7 decides to stand its ground, we may find the markets unsettled.

Russia ETF: RSX  Now down at critical support.

US Strategic Petrolem Reserve

West Texas crude has lost nearly $5 a bl. in price since late last week. Physical stocks are
up and winter is winding down. But the DOE also announced it is planning a "test sale" of
5 million barrels of crude, the first such since 1990. The sale involves a small fraction of
the reserve but it is timely for several reasons. Oil was about $10 a bl. high on a seasonal
basis with industry responding tardily. As well, knocking $5 off the oil price sends Putin a
message about new US flexibility with oil as domestic production continues to surge. A
weaker market can punish Russia's revenue take and budget. Finally, Political unrest in
Venezuela is growing and turning more violent as the economy implodes with rocketing
inflation and acute shortages of everything but anger. The sale from the reserve may test
more than just checking up on mechanics and logistics for oil release.

Monday, March 10, 2014

Stock Market Comments

The classic sign of a market bubble -- an extended period of super powerful price momentum
which takes the market very substantially above its long term range -- is not in evidence. For the
SPX to be in a bubble, it would have to run up to about 3500 by the latter part of 2015. It has
not exhibited that kind of price trajectory for a good several years. Since bubbles always pop,
and often calamitously so, it can be very misleading to tab a speedy, positive market as a bubble
because such carries the implication of an eventual disaster. Strong, positive markets can
terminate without fierce carnage, and, if economic fundamentals dictate, a mild bull market
can end in a rout. The SPX has been getting increasingly expensive since 2011 and as such,
market risk is on the rise. However, basic fundamentals and not terminology will mark its

Price Momentum Concern
I am a bit troubled that the SPX although rising is showing a downtrend in price momentum
in its 200 hundred day price oscillator. SPX vs. 200 day m/a The uptrend in the oscillator from
the deep 2011 low has also been broken. Clearly, the deterioration of momentum measured
this way has not harmed the market over the past two years. Significant price corrections often
show up with a corresponding sharp fall in the 200 day osc., so a persistent slow fade need not
trigger off an alarm signal. But, it could be a symptom of eventual difficulty and is worth
watching for that reason.

Friday, March 07, 2014

Gold Price

For me, it would clearly be better if the gold price was responding primarily to better economic
news without the safe haven clutter. Note when you view the chart that the gold price is
encountering overhead pressure at the $1350 oz. resistance line and that the short term
readings on RSI and MACD are not sending a promising near term signal. Gold Price Chart

Now that topless feminists have been tangling with security cops in Crimea's capital, the
situation there has veered from serious to surreal. Through all so far, no one has loosed off
rounds from an AK 47 in anger, but how long might that last? One can understand palpitations
among gold players.

Commodities Market

The argument has been that the global economy should strengthen further in 2014 and
that a cyclical recovery in the commodities market would eventuate. The market is up
nicely this year to date, although tough winter weather in North America likely set off
tighter supply / demand conditions in various sectors. The market has started to reverse
a longer term downtrend and has taken out near term, but minor resistance. It is also now
overbought on a short term basis and you may want to take this into account. $CRB Weekly

For more, check out the 2/14 post on this market which also contains a link to the 11/6/13
post. Commodities market

Tuesday, March 04, 2014

SPX -- Daily Chart & Fundamentals

The SPX has broken above 1850 resistance and has moved on to a new all time high. The
market is moderately overbought in both the short and intermediate terms. Looking back
through the end of 2012, it has reached a level in the short run when positive price
momentum ought to begin to roll over although the SPX can continue to push somewhat
higher. SPX Daily Chart

A study of the indicators shows that the near term overboughts have not been that hard to
short over the past 14 months, although the rewards of shorting have not been very rewarding
relative to the risks assumed given the strong trend of the SPX.

Viewed longer term, the SPX is on an unsustainable trajectory that continues to be fueled
by the Fed's QE program, which although shrinking, remains a potent force. The loss of
momentum  in the growth of monetary liquidity has yet to show persuasively that it will be
a constraint on the SPX p/e multiple, although the market  is up just 1.4% year to date.
The weather seems set to improve seasonally, so we'll soon see the bounce back potential
in the economy realized, even if modest (Since grandson and I have had to use a sledge -
hammer to clear the drive and deck of ice, I can assure you it has been a tough winter).

The SPX is trading around 17.4x estimated latest 12 months net per share. The market
commands a premium for cyclically elevated earnings even as the US economy has yet to
be tested on how well it may perform once QE is done and reliance on private sector credit
becomes more crucial. It is expensive, so each of you have to determine your comfort

Since there's no way I am getting up at four a.m. to look in on Ukraine and the happenings
there, I'll have to take the volatility in the markets as it comes along.

Sunday, March 02, 2014

For Christsakes, Vladimir

My younger daughter, an inveterate punster, said at lunch today: "When are we going to get
tired of Putin up with these guys?" One problem in dealing with the US is that you never can
be quite sure when a standing president is a killer diller or not. So, as Ukraine goes to full
military mobilization and Putin's boys expand their reach into the far eastern Ukraine, Putin
is counting Obama as a nice guy pussy cat who will not use US wiles and force to allow
Russian troopers and logistics to get stretched on a westward move with large NATO air and
naval power close at hand and also with NATO able to quietly inject advisors, supplies and
weapons into Ukraine nationalist strongholds in the western end of the country. Putin's bet
has to be that NATO will sit on its hands and allow Russia to try to work its will in Ukraine.

Because Putin can so easily put his guys and the Russian economy into deep shit with this
move, and because the Ukraine, despite its deep faults, well deserves to decide its own
destiny, one hopes cooler heads will prevail. Desperate guys are the most likely to do
desperate things.

I am watching the ruble and the Russian stock market. RTSI Weekly Chart Note that an
oversold is developing on the RTSI as it approaches critical support down around 1260.
There could be a nice rally here if Putin backs way off the current course. A sharp break
below support in a troubled environment could send the RTSI much lower.