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 !!!

Thursday, December 29, 2016

Oil Price -- Weekly

The oil price is experiencing its strongest year end close since 2012. This is happening despite
the fact that Oct.-Dec. is a very weak seasonal period. Fuel demand may have picked up some,
but the major reason is that traders have developed conviction that the OPEC-Russian supply
cut deal will hold going into 2017. Compare this year with last year when the price went into
free fall.  WTIC Weekly

The consensus for the WTIC trading range going forward remains at $40-60 bl. Price targets for
the seasonally strong spring of 2017 are starting to inch above $60, but most players are behaving
in a reserved fashion because Jan.-Feb is a seasonally weak period and since consensus supply
data for the final quarter of 2016 is not widely available. As of now, net oil producers are enjoying
a strong rebound in per barrel realizations compared to last years' disaster.

Production cut accords nearly always involve cheating so producer output data out ahead will be
carefully reviewed to determine if there are threats to the basic agreement. Traders will also be
watching US supply and the rig count to see if this now important new swing sector will inhibit
price recovery next year. Breakeven for the entire industry remains around $55 a bl. so deals are
out there if recovery progress holds.

The oil price is currently in a cyclical rebound stage with ascending tops and bottoms amidst
the usual volatility. WTIC is mildly overbought and is at a healthy premium to its 40 wk m/a.
One trader concern is that long side speculator interest is at record high levels just as it was in
in latter 2014 when crude made the important interim top of $105. Let's call it a very crowded

Sunday, December 25, 2016

SPX Weekly -- God Rest Ye Merry Gentlemen

We may well need that rest for 2017. Even the bulls are concerned that the Jan.- Feb. period may
bring some corrective action as Trump rolls out his programs and tweets it all out with an official
imprimatur. And, the Fed will be around, too. The kindling has already been tossed into several
dumpsters as well. There is a nuclear arms one, and several for China, including the one China
policy, and the prospect of tariffs. Immigration policy will get a few, especially since California
is sending ominous signals of resistance, and there will be a chorus of loudmouths in the cabinet
and advisors like Carl Icahn to set off a couple of dumpster blazes. With the Donald, conflicts
of interest will be the norm, and the issue of high crimes and misdemeanors may eventually
arise if the GOP happens to reach a point where its fortunes, now seen as good, are threatened.
Pence will be viewed  as fine in a severe pinch.

Weekly cyclical fundamental indicators continue to trend up, and the economy finally showed
signs of stronger growth in Q3. Hardly all is well yet. On a monthly basis, my proxies for total
business sales are doing a little better but expansion is still a bleak +1-2% yr/yr. Corporate
profits, helped by higher fuel prices for oil and gas producers, are recovering. The weekly
indicators, which the market has followed carefully since Feb., promise more growth as well as
inflation to come. Absent argument about valuation, these are positives.

The post-election rally has proceeded damage-free and has only been encumbered by recent
consolidation. The Dow 20K baseball hats sit at the ready in a NYSE storeroom. The up leg in
the market since Feb. is extended relative to its trend line and is moderately overbought at 6%
above the 40 wk. m/a. RSI and MACD are directionally positive but are approaching overbought
territory. Continued consolidation in the SPX or worse next week would fracture the post-
election trend up and raise eyebrows.  SPX Weekly

Tuesday, December 20, 2016

Stock Market

Consensus View
The e-inbox is stuffed with market forecasts for 2017. Based on a rather broad survey, seers
are looking for the market to range between SPX 2300 - 2500 for next year, with 2400 a suitable
mean. the hope is that a Santa rally will allow the market to close out this year at new highs. A
popular idea is that corrective action will set in sometime shortly after the new year as skirmishes
with Congress are set off after the inauguration when Trump rolls out his fiscal policy programs
and his cabinet appointments are debated. However, the overall view is that Trump will get the key
tax elements of his program through and that the economy will thread the needle in the new year
via moderate economic progress that is not sufficiently rambunctious to trigger off a sharp rise
of inflation or nasty action by the Fed. Because economic growth will not be that strong, we will
witness a sort of dwarf goldilocks economy. Presently, economic indicators are positive and there
is an as yet not adequately tested longer run cyclical trend line that runs out to 2500 at y/e 2017.

Most fundamentals - based forecasters seem to expect SPX net per share to reach a range of $125 -
$130 next year but there is some considerable disagreement over what p/e ratio is appropriate
to select based on differing views of how much inflation the US will get and in turn, how
aggressive the Fed will be in boosting rates. But, very few forecasters see a p/e ratio below 18x.
I think this stems from the idea that 2018 will see another year of strong earnings.

My Thoughts
The consensus view is too elegantly crafted in my view. Total business sales have improved, but
are still very modest. And, if orders do continue to pick up and inventory excesses are further
trimmed, eventual pipeline filling will put surprisingly strong upward pressure on prices, thus
forcing the Fed's hand. Plus, we are talking Trump in 2017. Maybe he will succeed in putting
more money in peoples' pockets, but he is easily 30 years behind the times and the macho
buffoonery elements to his 'America First' view cry out for geopolitical challenges. He is set
to make the US and rest of the world more volatile. I see egomania and a penchant for
insistently fanciful thinking. The US is sharply divided and his antics could create additional
social pressures.

The SPX chart shows an intermediate term overbought condition is developing.  SPX Daily

Friday, December 16, 2016

USD -- Significant Overbought Developing

From mid - 2009 through 2014, US monthly export sales increased from $120 Bn. to $200 Bn.
Now, global economic growth has slowed since the initial phase of economic recovery, but a
much stronger USD since late 2014, when the Fed first tightened monetary policy, has no
doubt contributed in a major way to export sales weakness since then. Since the economic
recovery began in 2009, I have been bullish on the USD because longer term economic
fundamentals have gradually turned positive relative to the rest of the world. I have been
projecting a gradual climb in the value of the dollar from the low 70's to 100 by 2020. I am
not a fan of a very strong dollar because it encourages nasty mercantilist policies from Asia
and Germany. So, I am happy to see a USD overbought. $USD -- Weekly

The chart shows a developing, significant overbought condition for the dollar based on inter-
mediate readings of RSI, MACD, and the Keltner bands. USD price action is less sensitive to the
indicator readings in the shorter run, so one cannot say for sure that a downward hit on the
currency is imminent.

The bottom panel of the chart shows the gold price. It has been hammered recently by the sharp
increases in both the USD and the stock market. A retreat in the value of the dollar, even a
temporary pullback of 3-4%, could give the gold price a tradeworthy lift.

Monday, December 12, 2016

Liquidity Cycle & Monetary Policy

Good to Its word, the Fed zeroed out the growth of Fed bank credit and the monetary base about
two years ago. Since then and as is typical, the economy lost most of its growth momentum and
the stock market has been anemically positive. The end of all quantitative easing resulted in a
substantial but not fatal tightening of monetary policy. The lackluster US economy has been
funded by the private financial sector. Not only did the private finance not fold its tents, it
provided sufficient credit to fund a slow, deflation prone economy with excess liquidity to
support both rising bond and stock prices. However, as the economy slowed down, the growth
of private sector liquidity did as well, and now with signs that the economy and the inflation rate
have accelerated, the growth of excess liquidity has shrunk, and it has become far more diffcult
to fund the capital markets. The big casualties have been the bond and gold markets.

With a stronger economy and more inflation, the private financial sector will respond by providing
faster funding growth through the loan windows. For this to happen, the Fed will have to move
to tighten policy further gradually so as not to create a liquidity squeeze via taking action that
flattens out the yield curve. If there are larger fiscal stimulus plans that come on the board over
2017 - 2018, The Fed will have to accommodate them up to a point so as not to choke off the
economy and provided the inflation rate does not accelerate too rapidly. US policy will have to
watch carefully the developing supply / demand situation in the oil markets as well because
if oil supply becomes meaningfully restricted, a rising oil price will push up the inflation
rate and lead to a significant wealth transfer from net oil consumers to net producers.

But, perhaps it is wise not to get too far ahead of ourselves. For a more nearly normal liquidity
cycle to play out, the US has to show first that it can sustain a faster rate of economic progress
and that It is finally overcoming the squeeze on primary system liquidity that comes directly
from the Fed. Recent economic data finally reflects a positive beginning to the process.

Friday, December 09, 2016

SPX Weekly -- Up and Up There!

The continuing rally has shown enough conviction and momentum to count as a breakout and
not a mere blip over a two year long trading range.  SPX Weekly

It is significantly overbought in the very short term, but has yet to reach levels on the intermediate
term weekly chart that would warn that a substantial retracement is in order. The market is now
moderately overvalued and strategists are busy playing with the SP 500 net per share to bring
the p/e multiple down to levels where buyers can feel more comfortable joining the chase. Using
GAAP accounting, and recognizing economic performance and oil company profitability are
moving forward, it is not a stretch to come up with an estimate for SP 500 operating net of
$120. per share for 2017. Yet, with  Trumponomics entering the equation, estimates for 2017
are now being ratcheted up to $140. This compares to 2016 net of about $108 per share. This
particular game is about 60 years old give or take.

The SPX is now about 13% above the upper band of its Post WW 2 trading range. In terms of
recent history, the market is behaving like it did in 1996 and 2004 when it ran above the top
of the historic range for several years until it collapsed upon encountering rising recession
prospects. You can maker good money during these periods of unbridled longer term effer-
vescence and lose your shirt when folks get wind that a economic downturn could be at hand.

At my leisure, I have been doing some thinking about the longer run prospects for The Donald's
presidency. In a nutshell, he is 30 years too late. Most all of the horses he rails about are long
gone from the barn and the views of his cabinet picks are as well. The world continues to
grow rapidly around the USA and The Donald's views are especially, painfully reactionary.
My grandson of 18 years is a techno - wizard with pals of many ethnic stripes and e- buddies
around the world. Perhaps talking with him as I do will keep me better informed than Wall

Wednesday, December 07, 2016

Gold Price

The gold price is volatile as we all know. But it has been hard to handle this year even so. There
was a good long side counter trend rally early in 2016.The oil price was turning around and the
inflation rate was in bottoming mode. The positive price action in gold got out of hand as the year
wore on and on Jul. 10, I cautioned both gold and silver were overbought on record speculative
interest. Gold hung around briefly but has since tanked 15%. This is not your father's gold market.
Since the 2002 -03 period, long side speculative interest has increased by six fold and the
curmudgeonly old bugs who used to haunt the market have been swamped by large pools of fast
money, especially hedge funds. With the US dollar picking up again in Oct., and the stock market
in rally mode since Nov. gold has been shunned and now sits $200 oz. below the highs of this

Gold has experienced a bearish 50 day m/a  /  200 day m/a cross and although it is still above the
lows for the year, is now sharply oversold with speculative interest waning quickly. The dollar is
easing off, but the stock market, although overbought, remains strong short term. My economic
and inflation directional indicators remain positive, which would normally help gold's case, but
the market may await short term damage in stocks before gold can stabilize. Moreover, there
are gold players who trade off the oil trend and black gold has recently leveled off.

Such are the headaches of playing counter trend rallies.  Gold - Daily Price

Saturday, December 03, 2016

Oil Market / Price

The view here has been that even though there is a good chance that global oil demand / supply
will come into reasonable balance by the end of 2017, producers pressured themselves to reach
an output cutting agreement this autumn rather than face another early winter sharp seasonal
drop in the oil price. And, presto!, the boys have an agreement with Saudis and OPEC taking the
lead. Everyone knows there is going to be cheating, but the hope among producers is that the
price will hold over the next couple of months, some cheating notwithstanding. By Feb., the
process for gearing up output to ready for the peak drive period will be underway and the
industry can start looking to seasonally higher prices. A consensus is emerging among industry
observers that crude should trade between $40 - 60 bl. in the months ahead.  WTIC Weekly

The oil price began to turn positive early in '16, but currently remains tentative until crude
begins to clear $50 on the upside. Good to remember that with weak demand, no one would
be shocked if the price tested the $40 area again before moving higher again in late winter.

Consensus is that the entire oil output industry becomes profitable again around $55 bl. As
shown on the chart, the current 52 wk. m/a is about $42.50., so the boys are still running well
in the red on an annual basis. The bottom panel of the chart shows the 52 wk. ROC% for
oil. It is now strongly positive, so producers are going to show less awful results and SP500
net per share will receive a nice shot in the arm going forward. With oil price momentum
improving you can also expect higher inflation readings around the world.

Producers plan to re-visit the production curtailment around the end of May. If there is not
widespread cheating, the emphasis will be on whether there has been any progress in paring
the outsized inventories of crude and byproducts. I doubt now that there is much of any
consensus on where the oil price may be later in 2017.