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 29, 2015

Oil Price

WT crude closed out 2014 in the $53 - 54 bl. area. The price experienced seasonal weakness in
Jan. and Feb. of 2015, and with a seasonal bounce in Mar. ended the week at $48.40. Further
seasonal strength lies ahead as refineries gear up for the major driving season. However, by
late April oil can enter a period of  modest weakness / volatility which can last through Aug.
WTIC weekly

So far this year the dramatic decline in the US rig count appears to have counterbalanced a
growing glut of US crude from fields using fracking technology. Trading volume in oil
has soared, but neither the bulls (those long on a fast declining rig count) or the bears (those
short on a growing excess supply) have been able to establish a decisive edge.

The oil price has very recently come out of the high speed crash downtrend it began in late
Sep. '14 but it is way too early to tell whether a solid bottom has been established in the mid-
$40's or whether crude can mount a significant seasonal rally over the course of Apr. The
oil market has not been able to hold above its 13 wk. m/a but may well challenge it in the
month ahead. WT crude is deeply oversold on RSI and MACD as well as against its 40 wk.

I have long strictly been a trend trader on the oil price so my position would now be on the
side line. The bottom panel shows the weekly action of the US dollar. I have been a bull on
the dollar since the early stages of the economic recovery (2009). Since my long term
projection for the USD remains 100 or par in 2020, I now see the dollar's recent sharp upturn
as rather extended and will be watching the buck carefully to see if  further corrective
weakness might lead to stronger positive action in both oil and gold. 

Thursday, March 26, 2015

SPX -- Daily Chart

As cautioned back on Feb. 22, the market did break out to an new all time high but it was on
a short term momentum overbought and that set up folks for a fail. The SPX is trading below
the late Feb. highs, but it has not been nearly as bad as it could have been given the Feb. set up.
SPX Daily

The market rallied off trend support at 2040 toward mid Mar. and with the recent weakness is
back down at trend support once again. Thus as the month end approaches, the uptrend off the
Oct. '14 is about to be tested once more. The SPX is now mildly oversold on a price momentum
basis, so there could be a decent bounce. If the SPX can recover back up to 2100 by the end of
the month it will meet the minimum requirement to hold the major p/e ratio expansion uptrend
in place since late 2011. Should it do so, it may again fall into the "bends but does not break"
and "buy the dip" categories that have characterized this particular and lengthy uptrend for the

The SPX has so far failed to maintain positive momentum since mid - Nov. 2014. This action
most likely reflects the loss of economic growth momentum and the  mild pressure on SPX
reported earnings from a strong US dollar coupled with weak resource based results. There is
not strong evidence to say that investors are worried yet about having the Fed boost short term

Sunday, March 22, 2015

China -- Beware The Shanghai

I posted bullish on China on Jun. 3, 2014. There were easy, low risk trades. I even raised my
fair value level on the Shanghai for 2015 to 2750 subsequently. The market is now parabolic
and we are witnessing the same sort of folly we saw over 2006 - 07 and in 2009. Shanghai

China has the PBOC abandoning its monetary discipline again to grow the money supply
vigorously in view of continuing tepid economic performance. Because the Xi government is
also trying to implement reforms, it remains unclear how unabashedly aggressive the central
bank will continue to be in wielding policy. China Money M-2

The Shanghai market is now hugely overbought on the indicators and is trading a whopping
36% above its 40 wk. m/a. Whatever upside is left on the current parabolic run higher, figure
there is a 1,000 points of downside if Xi and his guys put the leash on the PBOC at some
point out ahead.

For those who want to stay long China equities, it is essential to watch central bank monetary
operations from week to week. The S&P China Spyder GXC is in the bottom panel of the
Shanghai chart. It is a version of an index fund and does not exhibit the craziness of the SSEC.

Wednesday, March 18, 2015

Monetary Policy

The case for raising short term interest rates based on well established long term standards is
weakening. Since the autumn, business new order strength has moderated as has manufacturing
activity. Plant operating rates have fallen as capacity growth remains at a 3.1% annual pace
while output growth has moderated. My short term supply / demand pressure gauge stands at
a moderate +4.3 in favor of demand and is down from late last year because private sector
liquidity has accelerated. Bank deposit growth has been sufficient to offset a recent reduction of
$20 bil. in Fed Bank Credit without roiling the short end of the market.

Some of the easing of economic demand reflects anticipated adjustment to the close out of the
QE 3 program and some of it comes as a result of severe winter weather in the eastern portion
of the US. Spring arrives this weekend but we here in the east have been moving from ultra-
winter to just plain winter.

The Fed now awaits seeing whether a spring thaw brings more vigorous economic activity or
whether the economy has lapsed into a slow growth rut. The benefits of the huge QE program
are on the wane, but private sector credit availability is on the rise and the banking system is
still nicely liquid.

With inflation having decelerated substantially over the past three years, my super long term
3 mo. bill fair value yield model suggests that the Bill should now be yielding only 1.5%. From
this low base it may be the case that if the economy rebounds as the year progresses and
inflation does not accelerate dramatically, the end to the Fed's ZIRP need not produce a large
surge in short rates.

As a growth oriented player, I am hoping the transition from Fed quantitative ease to private
sector credit generation works relatively smoothly. The hard data now supports a solid
transition, but that does not cover a very key variable: private sector confidence that the
economy can carry on. The few past episodes in US history of transitions from quantum Fed
easing to dependence on the private sector have not worked out well with the sustainability
of confidence the weak link. So, we hope for the best.

Sunday, March 15, 2015

SPX -- Weekly

Since the termination of the QE 3 program became a done deal in Sep. 14, the positive momentum
of the SPX has deteriorated along with the growth of total system financial liquidity and the real
economy. Liquidity has continued to fade in growth, but with inflation so low, the capacity of the
real economy to progress has not been exhausted.

My forward looking weekly cyclical fundamental indicator has been diverging internally. The
indicator, excluding sensitive materials prices, has flattened out since last autumn, while the
industrial commodities composite, which includes spot oil and fuels, has weakened considerably.
Continuing excess production capacity in China has also suppressed the index, and since China
is the largest user of cyclically sensitive materials, the behavior of the index overstates the case for
slower US economic performance. Even so, the short term leading indicator composite favors
slower growth ahead with relief from another severe winter east of the Mississippi likely to soften
the blow.

the big story for the market since late 2011 has been the sharp elevation of the p/e ratio as investors
have used nominal short term interest rates and sharply decelerating inflation to boost valuations
across the board circa the behavior of the market the through the mid - 1960s. There has been a
broad boost to investor confidence so strong that the "buy the dips" mentality has been in force for
over three years. It has only been recently that the willingness to push the markets' p/e higher has
been challenged via the termination of QE 3, the prospect for flatter earnings and, now, stronger
speculation about whether and when the Fed may abandon Its ZIRP.

Investors must now assume significantly higher risk to stay in the game on the long side.

The SPX is not materially overbought on a price momentum basis, but internals such as RSI and
MACD show a pattern of steady but graceful deterioration from exalted levels set in mid - 2013.
The pattern of graceful unwinding of the enormous overbought weekly readings set back in '13
are powerful testimony for investor confidence and determination to stay in the game on the
long side. Historically well founded technical warning signs have been ignored and only folks
who have heeded them have paid the price. SPX Weekly

To hold the longer run trend from late 2011, the the SPX needs to finish out this month above or
close to 2100. It is possible the eagerly awaited FOMC meeting and subsequent Yellen press
briefing  this week will have significant bearing on whether the market holds trend near term.
Interestingly, extending the trend line through Jun. gives an SPX reading of 2200. Another
substantial challenge for the bulls.

Tuesday, March 10, 2015

SPX -- Daily

As posted on 2/22, I urged caution on the SPX breakout given that it had become significantly
overbought short term. I have also argued that price breakouts from short term consolidation
periods can sometimes whipsaw. And, this is what has come to pass. SPX Daily Nasty business
for the follks who were enticed by the breakout.

With the recent sell off, the SPX is right above intermediate term trend support at 2040 and has
broken modestly below longer range support dating back to late 2011. (The market has had
several breaks below longer term support, but all have been minor and were remedied quickly
by subsequent rallies.)

The SPX is now mildly oversold on a price momentum basis and the RSI measure is headed
down to an oversold reading as well. With the recent weakness, the index is now down into the
middle of the 2000 - 2080 range that has mostly held sway since Nov. '14.

The proximate cause of the sell off in Mar. was the stronger than expected jump in jobs
which has triggered concern that the Fed might elect to finally begin to raise rates at the
short end. The Fed has been suppressing short rates for a while and the one item on Their
current checklist -- inflation that is too low -- has yet to turn. More broadly though, it may
be too early for the markets to speculate on rising short rates. As I have suggested several
times over past months, the end of QE 3 would lead to a curtailment of liquidity growth and
a slowdown in real economic progress. Since Aug. '14, all industry new order PMI has
fallen from a very strong 65.9 down to a still positive but more modest 54.6 Complicating
matters are the effects on general business activity from the prior west coast dock strikes
and another snowy and bitterly cold winter in the eastern third of the US. The very recent
action of the stock market suggests players see labor issues and the bad weather as temporary
pressures on growth and that with springtime there will be enough of a bounce back in the
economy to keep worries elevated that the Fed may begin to end Its ZIRP.

The lack of clarity on how well the economy will do short term and the prospective
continuation of low inflation may leave players guessing on Fed intent for a brief while and
since I am almost always reluctant to engage in divining Fed intent, I do not plan to shift
primary fundamentals away from a still positive view.

Wednesday, March 04, 2015

Gold Price

The gold price has been in a bear market for several years now, but what is intriguing about it
has been the shelf of support around the $1200 level . Gold Daily

Gold has experienced trade worthy early in the year seasonal rallies in both 2014 and the current
year. The rallies did not hold, and here in 2015, we find gold back down to shelf support at
$1200. In an admittedly flippant argument back in late Nov. '14, I traced out how the gold
price might fare better this year, with my thought  being that gold might be dragged up by
a weaker US dollar as offshore QE programs might bring a firming of growth abroad and
erode the strong safe haven status given to the greenback since mid - 2014. I have been thinking
this would take place over the second half of the year. Although the blow out in the oil price
has made this roundabout argument shakier and perhaps also reduced gold's eventual upside, I
still think it is an interesting one given the usual positive economic response to QE programs by
major central banks. I suppose it would also help gold's case if the euro was to recover some
ground against the dollar as the EZ's economic prospects improve.

I have the US stock market primary fundamentals as still positive, but this does not preclude
either a price correction, or, as has been happening recently, the beginning of rotation out
of US equities to foreign stocks. I make this point because gold has struggled against the
surge of US stocks since latter 2011.

If you are partial to gold, you might want to keep this homily on the metal's possible potential
in mind.

Sunday, March 01, 2015

SPX -- Weekly

As it comes off a strong Feb., the SPX is at an important juncture on the weekly chart, as it
is nearing positive reversals of intermediate term downtrends in RSI, MACD, and 52 wk.
price momentum. Interesting couple of weeks ahead. Weekly SPX Also view the monthly
chart in the post just below to note how strong monthly MACD is being tested.