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, January 31, 2016

SPX -- Weekly

12 Month net per share for the SPX hit an all time high of $114.50 For the Sep. '14 Q3. Since,
annual net has declined to around $105. for Q4 '15.Real economic growth has slowed persistently
since the late summer of 2014, pricing power has eroded, and my selling price / cost measure has
come under modest pressure at the macro level. Other notable factors have been the blow out in
the oil price and a stronger US dollar which led to slower export sales and currency translation
penalties. The deterioration of earnings fundamentals has carried over into early Jan. this year,
with leading economic indicators reading flat.

the dividend yield of the SPX sits at 2.3%, and is well above the level of cash equivalents, but the
p/e multiple is under downward pressure reflecting ebbing investor confidence over the erosion of
the business outlook. Book ROE% is 13.5, but is under pressure from declining net per share.
Internal growth potential has dropped to a below average 6%.

From my perspective, risk capital needs to earn on average 10% per year. The SPX does not clear 
this hurdle and the outlook for sales and profits needs to improve markedly through the year for
the market to have economic value.

After an extended topping process around the SPX 2100 level the market has entered a primary
downtrend. However, the SPX is now deeply oversold on an intermediate term basis, and given
the volatility in evidence since last Aug. one simply cannot take an extension of the weakness in
the market for granted. Let's see how the heavy oversold plays out. SPX Weekly

Tuesday, January 26, 2016

Oil Price

There is a welter of arguments and rumors concerning both global crude oil demand and supply 
for 2016. Rather than get buffeted by all the issues, I am content to follow the well worn seasonal
annual pattern for now because it has been working recently. The seasonals call for a rally over
the second half January (now nearly complete) to be followed by another sharp leg down in Feb-
ruary to what could be the annual low. In late February, refiners begin to ramp up for the spring
and summer driving season, and the oil price enters a period of seasonal strength that runs through
September. From a purely seasonal perspective, this is the time to be long crude. 

Seasonally speaking, crude could fall as low as the low $20s bl. over February before rising demand sweeps the price higher. As an example, crude rallied from $45 to $60 over this period last year before surging supply sent it lower. The next six odd months should give us a better test of the supply /demand balance and whether rising output will squelch any plus from the demand side.

In the meantime, oil remains in the grip of a powerful bear market, and, for the short run, would 
have to clear $35 on the way up to give a bullish case any credibility. WTIC Daily

Friday, January 22, 2016

China -- Stock Market Update

I have done well trading the China market. By the same token, it is very difficult for me to write
intelligently about the place . Not only am I a world away from it, but by Their own admission,
China's economic data leaves a lot to be desired. The latter has led to the creation of a small
universe of economic / financial professionals who make up their own data bases and create
forecasts from said data. Thus, depending on who you follow, China real GDP is growing
somewhere between 2 - 7%! My preference is to take the numbers as China reports them and
to commit the additional sin of viewing the data through western eyes. So, be warned.

In the blog archive is a post dated 6/24/15 in which I first congratulate myself for turning bullish
on the China stock market at Shanghai 2000 in mid - 2014 and then discussing how at Shanghai
4700 in late Jun., I concluded the market was rather overdone, with extraordinarily high RSI
readings. Shanghai Weekly

China shares are now in a nasty bear market as all know. Official data indicate China GDP and
production have stabilized at nearly 7% over the past year. The argument here has been that
even if China was growing as fast as officially indicated, the Shanghai would be reasonably valued
in a range of 2700 - 2800 as marked on the chart. With the market now at a little above 2900,
most of the excess valuation has been wiped out. Moreover, the market is approaching an inter-
mediate term oversold. Because of the occasional 'all or nothing' movement of this index one
would be foolhardy to say a bottom was near at hand. Still, I plan to keep an eye on it.

The bottom panel has the S&P broad cap weighted index of China shares (GXC). At a value of
64, this less volatile index is trading 10 x net per share. This does not appear to be an excessive
valuation by any measure, even if China is growing somewhat less than 7%. I view the Shanghai
as still a little overpriced relative to the much less famous GXC.

Monday, January 18, 2016

SPX -- Weekly

As previously discussed, I cleaned out stock longs on Nov. 2 after playing the Oct. rally and posted
a "tight money sell" rating on Dec. 16, when the Fed's decision to begin raising short rates was
implemented and my primary fundamental indicators turned negative. My biggest concern for well
over a year has been that history shows that the stock market and the economy have troubles when
the Fed turns off the liquidity tap after a lengthy and very large build up. Although there have been
few instances in US history when this type of sequence has occurred, it has turned out to be so
this time as the economy has steadily lost growth momentum since mid - 2014 and the stock market
has followed suit. Surely, the bust in the oil market has substantially magnified the effects of the
major tightening by the Fed, but the die was cast. The economy has remained in positive territory
so it could have been worse.

The stock market can rise when my primary indicators are negative, but whatever the degree of
positive return potential, the risks to equity capital are quite a bit higher. Without liquidity support
from the Fed, the economy is dependent on  sustaining growth from its own internal resources.
The steady erosion of economic growth momentum with the added burden of a weak energy sector
shows the economy is struggling to transition to sustainable progress and has led to a  trend of
declining earnings in the bargain. The p/e ratio is also eroding as confidence wains, having fallen
from 20.3 x net per share to 17.9 since the spring of last year. The current lower multiple on $105
per share earnings for the SPX can slip lower if investor confidence continues to wain.

The economy can still right itself as the year progresses. Jobs are expanding, the level of consumer
confidence is positive and fiscal policy is in transition from being a drag to being stimulative.
There are excess inventories in the system, particularly petro based, and these overages should
tend to wear down as the year progresses. Be mindful too that net petro product consumers are
continuing to experience a windfall from the tanking of the oil market.

Historic weakness so far here in Jan. has brought the SPX to a deeply oversold condition short
term and an interesting oversold is also fast developing for the intermediate term as well.
SPX Weekly

The bottom panel of the chart shows that a major oversold on the 14 wk. stochastic measure is
developing for only the sixth time since 2011. Stochastic oversolds like that shown often yield
rallies even in bear markets. So pay heed.

As a testament to the whipsaw volatility of the recent market, note as well how the MACD
gave only a short term rally signal in Oct.before it rolled over wickedly just as it was on the cusp
of a buy signal that could have provided several months of positive return (I lucked out on
that one).

Welcome to the world of having to go it alone without help from the Fed. You are not alone.
Keep the Nexium handy and try not to use the john when the market is open. 

Wednesday, January 13, 2016

SPX -- Daliy

With a weak market failing to hold support at SPX 2000, it has entered breakaway down mode
and is headed to major support in the 1870 - 1875 area. Theoretically, a break below this latter
level would open the SPX to a much steeper fall. SPX Daily

Folks will be watching 1875 support very carefully. And not just bears. If the market falls to this
level soon, it will be heavily oversold, and if the SPX holds around this level, there could be a
strong rally comparable to what was seen back in Sept.

There has been much chatter about China, but I think the main issues for the US market concern
the steady loss of economic growth momentum since mid - 2014, a blow out in the oil price,
the resulting trend of steadily weakening of earnings and the fact that despite this deterioration of
fundamentals, the Fed has chosen to begin the process of "normalizing" monetary policy by
raising short rates up from the zero bound. More broadly, the absence of the large QE 3 tailwind
has undermined investor confidence, with more players perhaps unwilling to capitalize net
per share at the higher levels observed a year ago. Since recession indicators have not been
signaling a future recession yet, the market, in assessing dour fundamentals, may simply be
pricing in higher risk. Remember, from late 2011 until early 2015, the p/e ratio of the SPX nearly

The bull case in 2016 was never going to be easy since not only do the economy and corporate
profits need to improve, but the better results cannot be too strong less the Fed tighten the
screws faster than They have led us to expect. It's called "threading the needle" and we only
get one try.

Sunday, January 10, 2016

China -- Year Of Decision

China ratcheted up money supply growth over over mid - 2014 through mid - 2015. In so doing,
the stewards of the economy succeeded in halting a trend of sharply declining production growth.
Since early 2015, output growth has stabilized a little above 6% , measured yr/yr. The strong easing
of monetary policy and subsequent other stimulative measures triggered the big surge in the stock
market through mid - 2015 to excessive levels. At the same time, one engine of growth -- export
sales, continued to flounder and decline. to buttress this area, China devalued the Yuan in Aug.
just as the speculation in the stock market was unwinding. China then tried to hold the new, lower
value of its currency via tightening of its monetary reins and failure to replace liquidity outflows.
It stepped up again in late 2015 to add liquidity aggressively to the financial system, but in so
doing, faced enormous cost to hold its new currency peg. So, it had to devalue again last week. On
top, its stock market cratered again and set up a global equity market sell - off.

Now China has been able to maintain its output growth over the past year without a recovery in
export sales. Time now will tell whether The Dragon will have to devalue the Yuan further to
stop the erosion of exports. If regaining market share of global trade is now a primary objective, it
may well trigger additional capital outflows, which damage other important portions of its economy
as well as China's capital markets.

In a slow global economic growth environment, a fresh China initiative to regain export market
share is bound to have rather limited success anyway, and since China wants to re-orient its
economy to increase consumer spending and its services sector, logic suggests it concentrate
liquidity growth on funding its longer term priorities and allow the currency markets to adjust
to China's new direction.

Since latest available data suggest China is adding liquidity to re-generate monetary growth,
there may be a strong temptation on currency desks to challenge The Dragon's latest, lower
peg. At the same time, China may want to start to husband reserves. To add to the fun,
stronger liquidity growth within its economy could well lift output growth, and signs of
further economic stabilization might eventually garner some recovery of the Yuan.

Wednesday, January 06, 2016

SPX -- Daily

The downtrend in the SPX which started in Dec. 2015 has extended into the new year, and with
today's break below 2000 support, has become more respectable. Because I read charts more liberally
than most folks and always use hard copy graphs, I have seen the market in a volatile and modest
uptrend since the Aug. '15 low, but now the dip that is underway presently will threaten that humble
trend up if it continues on course down to the 1960 -70 area in the very short run. SPX Daily

Right now the SPX is moderately oversold on price momentum and selling pressure (TRIN), and a
failure to rally in the days ahead would signal something a little more serious might be afoot, which
in turn might necessitate re-appraisal.

Friday, January 01, 2016

SPX -- Weekly

By far the dominant theme for the broad market since late 2013 has been the relatively persistent
loss of positive price momentum. Over this period through year - end 2015, The yr/yr rate of
change for the weekly closing price has fallen from +30 % down to -.7% (top panel of chart)
SPX Weekly. Declines from +30%  yr/yr are often more precipitous than shown on the chart and
are often referred to as "valley of death" moves. The current animal is a little different. It reflects
the ending of the Fed's huge QE program, the subsequent shrinkage of positive economic momentum
and a negative turn in profits and, finally, the Fed's decision to further tighten monetary policy
via raising short rates. This process has transpired against a positive backdrop of continued, albeit
modest global economic growth, still historically low interest rates, and minimal inflation.

The flatness in the market this past year has ended the clear cyclical uptrends in place. The market
did enter a downtrend late in the year, but this appears inconclusive so far. So we enter 2016 with
a stock market that has no clear direction, has  seen a winnowing of breadth and a persistent rise
in selling pressure to oversold levels. Note, interestingly, that the MACD reading on the chart has
turned positive, but note as well the absence of recent "lift" or strong momentum in the indicator.

I have seen about 25 'guesstimates' from strategists for the SPX going forward. Most of them fall
into a range of SPX 2000 - 2250 for year - end  2016 including that of yours truly who is at 2160.
Continuation of the downtrends in the indicators shown in the chart now imply a down market,
 so you need to keep a wary eye on this chart.

You should also scroll down to the 12/13/15 post "Stock Market -- Quick Weekly Profile" and
keep an eye on the last chart linked to (TRIN). This shows a clear oversold condition.