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 !!!

Tuesday, December 25, 2018

SPX -- Update

Santa was a no show, contrary to my hopes. Instead, and through Christmas Eve, we have an SPX
in fee fall on a bear chart, as players who were wildly enthusiastic at the outset of the year, turned
panicky toward the very end. I would suggest against trying to call a bottom to this panic until
some degree of stabilization shows up. The decline in the SPX below its 200 day m/a has been
steep enough to render the market deeply oversold on an intermediate term basis, but history
shows declines of this magnitude have further downside to go as often as not.  SPX Daily

Everyone knows about concerns regarding a slowdown of US economic growth in the context of
slowing global economic demand. We also know that the US vs. China trade spat could intensify,
and that there are issues in Europe including Brexit, Italy and socio-political worries. We now
also have The Donald threatening the Fed and exhibiting inconsistency on a wide range of
domestic and foreign policy issues. Overt meddling with the Fed is inherently dangerous.

Even if the US economy slows down significantly over 2019 - 20, as long as no clear warnings of
recession show up, the SPX is reasonably priced on basic fundamentals so long as businesses
continue to show positive cash flow and the financial system can retain most of its current
relatively strong position. Based on the fundamentals, I would not quibble with assigning fair
value of 2650 to the SPX through early 2020. However, investors need to watch the Fed like
hawks to assure themselves that They are not removing liquidity too quickly through the QT

I did argue last year that the 2019 - 20 interval would involve a deep sell - off in the market.
History shows that strong declines tend to occur every 7 - 9 years, and the market is running
overdue. I do not know whether the current free fall pattern is the kick off or not. I would be
delighted if we could make it through the Trump term ending in early 2021 at 2500. 

Monday, December 10, 2018

SPX -- Where's The Holiday Spirit?

Both the US economy and the global economy at large should experience further slowdowns next
year and SPX earnings estimates are being clipped. Today, on an intraday basis, the market tested
critical support at 2600 before rallying up from it. My analysis of a host of intermediate term
indicators plainly suggests that the SPX is vulnerable to further downside before a less risky
long side trade would be warranted. But, and call me a sentimental old fool, 2018 was a good
year for the US economy and though there are well known risks for next year, it is outre in my
view to have the market break lower over Christmastide for God sake. Let's have a nice holiday
season and salt the worries about next year away until January. SPX Daily

Sunday, November 25, 2018

Stock Market update -- Fundamentals

The US economy is showing numerous preliminary signs that a slowdown is dawning. As well,
the various leading eco. indicators have been losing positive momentum since early this year
and this steady trend signals a slowdown of growth ahead. My analysis finds nothing serious
yet and I conclude it is premature to talk about a recession. But there maybe a pronounced
downturn in the expansion ahead and critical as always will be inventory management by all
levels of business. The supply management software is there to provide comprehensive and
timely inventory data right down to mom/pop businesses. What I watch in the short run is
inventory to sales data and any signs there may be inventory speculation underway. With
inflation still modest and with short rates even for prime borrowers now running at least 2%,
there is sufficient reason avoid speculation and manage working capital carefully. 'Wolf at the
door' recession scenarios do not seem appropriate at this time.

However, a pronounced economic slowdown will have an adverse impact on profit estimates
and I think the market has already started the process of discounting more modest growth in
business profits as the US appears set to join a global slowdown.

Whether the recent stock market correction is sufficient to allay most fears is hard to say, but
it is tougher to expect strong and sustainable price rallies when market players are concerned
the longer term direction of profits growth momentum may be more sluggish than recently
thought likely.

The Fed is coming under increasing and substantial pressure to slow or even halt its policy of
tightening credit via hikes in short rates. If the Fed succumbs to the pressure, it may trigger a
'relief' up leg in stocks, but such an event will only serve to complicate the Fed's job later on
when a final stage economic expansion may develop. You also need to keep in mind that the
Fed still seems intent on shrinking financial liquidity via downsizing its balance sheet.
So far, the possible deflationary impact on p/e ratios from this  era of liquidity tightening has
been displaced by large fiscal stimulus and deficit budget financing. but without additional fiscal
loosening measures, the quantitative tightening under way will re-assert itself with probable
negative effects for the various forms of risk capital to occur down the road.

A heavy duty trade war with China will be broadly economically destructive. Let us hope that
the principals can finesse the situation, but I suggest you keep in mind that neither Xi or The
Donald are the sharpest knives in the drawer by any stretch.

Sunday, November 18, 2018

Stock Market Update -- SPX Chart

I'll tackle the fundamentals later in the week, but let's look at the chart first.  SPX Weekly

The market just closed a touch above the long term trend line going back to 2009. So, it is still a
cyclical bull of long duration. However, the important trend up from early 2016 has been
broken, and that uptrend marked the third wave up for the market since 2009. So, by my
reckoning, it remains to be seen whether the bull may soon run out of gas or whether there is
some sort of bonus round up in store.

Note that the 40wk. m/a of the SPX has recently turned down for the first time since the second
half of 2015. There can be sudden whipsaws here, but a downward shift in the 40wk. m/a often
signals further weakness lies ahead even if it is not especially dramatic. The market is oversold in
the short run, and sentiment is rather bearish. So, there could be a bounce ahead, and looking at
the stochastic in the top panel, there is reason for optimism in that positive turns in this measure
after it reaches a low point often do signal a bounce. Naturally, there can be a whipsaw here, too.

There are still plenty of players out there who do not see a cyclical top in this market until some
time next year. To accomplish this, the negative downtrends in SPX momentum since earlier this
year, as captured by the MACD and KST measures in the bottom two channels of the chart,
would have to reverse in a significant positive fashion. Now, to be fair to the bears out there, it is
worth saying that intermediate downtrends in price momentum measures often presage actual
further price corrections in the market.

I have said in the recent past that this has been a lovely ride up from the depths of 2009, and that
this market really does not owe us anything now, given how close we were to true economic
disaster or Armageddon over 2008-09. So, for now I am content to see the SPX trade in a range
of  2600-2850, and I would be delighted if we can make it through 2020 at SPX 2500.

Sunday, October 14, 2018

Stock Market Update

Back in January of this year, I argued that the market was way overbought and that the odds of
continued strong, positive performance were very low. Here we are in October with the SPX
trading a little below its Jan. high.The big premium in the SPX over its 40 week m/a has finally
been wrung out. Long term, the market is still in a positive mode, but barely so. Moreover, the
intermediate term reading of the important MACD indicator is on the cusp of turning down and,
the major supporting trend lines have all been violated. Conveniently, the SPX has just had an
OK test of the 40 week m/a. However, from a technical perspective it will soon need a fresh upleg
to keep the bull intact.  SPX Weekly

From a cyclical perspective, the economy is gracefully edging into the twilight of its expansion
period. The labor market has tightened with skilled workers now at a premium. There is some
idle productive capacity in the system, but we cannot be sure how economic it is. On the plus
side, my short term credit supply / demand pressure gauge is in reasonable balance and banking
system liquidity is in decent shape. Inflation has been accelerating, but the trend has been rather
mild and uneven. Interest rates, short to long term, remain in firm cyclical up trends although
the bond market, ever sensitive to the degree of economic momentum, continues volatile.

Business sales and earnings growth has exceeded expectations this year and with inflation
running mild, investor consensus now has the SPX rising to the 3000 level as the current year
winds down, with further gains projected through mid - 2019. Beyond that point, market
players are considerably less sure of continued progress.

I do not now have a compelling argument to deny the bulls another round of up sweep for
the SPX over the next six to nine months. But do not tarry boys.

Tuesday, July 10, 2018

Stock And Bond Markets

As a long time conservative and highly disciplined markets player, I have to say that both the
stock and bond market are just too rich for my blood. I have some major retirement projects
at hand, but before going, I will leave some commentary on the major capital markets.

I have to say that with the market just below its most long term overbought condition in nearly 40
years, I have been a little surprised that we have not seen a more negative reaction. I do not pretend
to have a good idea of how stocks will behave for the rest of 2018, but I have some suspicions. For
one, I believe the bigger funds are playing the presidential election cycle. This is year two of The
Donald's reign, and in keeping with the cycle, players are expecting a strong positive run later in
2018, with a consensus high for the year of about SPX 3000. I also suspect that most big time
investors expect the current Trump initiated trade conflicts to remain inherently modest and not
escalate into a much larger and open ended trade war with the US vs. China the key players. In my
view China's aggressive mercantilism needs a nasty comeuppance, but Trump may not want to
call in heavy fire on his own position. As The Donald himself likes to say, "We'll have to wait and
see" on this one. The market also does not seem very concerned about a Dem "blue wave" victory
in the upcoming mid term election this Nov. Lord, would such an event shake things up in DC.

The SPX is now currently rising above my estimate of SPX fair value of 2720 to run well into
2019. This is a rather liberal estimate and leaves significant downside for the market if the
fundamentals disappoint expectations. The market has broken its trend line off the 2016 low, but
is still postive above its rising 40 week m/a. SPX weekly  I would have an interest in a long side
trade if the SPX somehow rolls on down to 2500.

By the way, should the SPX enter a strong, late cycle powerful rally up to 3200 by early 2019,
it will have reached bubble territory on my super long term semi-log chart.

Bond Market
Right now, I would not trade the 30yr Treasury in my account below  4%. However, as the
cycle progresses toward an eventual economic downturn, and if the inflation rate is still
modest, that would suggest to me that a fresh recession could again introduce deflation, and
that would introduce a new element of interest for sure.

Gold Price
I am monitoring this one for a long side trade provided the USD falls sharply out of favor.

I plan to return to the blog again in November.

Thursday, June 28, 2018

Gold Price

The gold price has recently entered a sharp downtrend. It is fast approaching an oversold reading
on the important RSI technical measure and may, given its inherent volatility, test intermediate
term support at the $1200 level. A relatively strong US economy, rising short term interest rates,
and more recently, Trump inspired talk of a trade war, have all worked to strengthen the USD.
Sudden dollar strength has weakened trader support for bullion. Gold Weekly

Within a couple of weeks, all markets players may get a stronger sense of whether the Trumpsters
are running a bluff on China or whether They really are ready for a long, long overdue battle
with China over Its mercantilist policies. Knowing Trump, if his crew can establish some headline
trade and investment restrictive programs which do not upset the apple carts but give him some
bragging rights, he may go for that rather than go for the more punishing programs that could
could unsettle the US economy and bring blame to his doorstep. If the tough talk is just a typical
bluff, the dollar may eventually lose some ground and usher in a long side trade in gold.

Wednesday, June 13, 2018

Stock Market Update

Looking at fundamentals and valuation, I see little if anything to add to the 5/21 "Looking Ahead"
post (see immediately below). As I read, I note there is a new conventional market wisdom about
Trump : Namely, that his bark is much worse than his bite. May be. But please note that he has
yet to face a major economic or policy crisis. This guy is eminently capable of fucking up big
time, especially when one of his obsessions is seriously challenged. So if you are in the game,
best pay attention to what he is up to. Now, looking ahead, there could be an issue for the market
regarding the Congressional election this autumn. It would be normal for the GOP to lose seats
in the House and the Senate, although there are a number of Democrats up for re-election in
the Senate this year in conservative and borderline states, so the once popular idea of a "blue
wave" that could sweep the Democrats into control of  capitol hill currently seems less assured.
In the meantime however, the market may experience some angst anyway, as a "blue wave"
would prompt strong, critical reviews of the current pro-business policies in place.

From a technical perspective, the market needs to clear short term resistance just below SPX  2800
some time fairly soon to convince traders that a new up leg is solidifying.  SPX Daily

Monday, May 21, 2018

SPX -- Looking Ahead

Total business sales have been ticking along at nearly 6.5% yr/yr. With reasonably strong
volumes and a price/ cost ratio fairly even, pretax margins have been advancing, and bottom lines
are enjoying the large extra kicker from the tax cuts. As well, inventories are being managed well
compared to other growth spurts during this long expansion period. Stock buybacks are surging,
providing extra fillips to net per share. But businesses are committing to higher levels of capital
spending as well, which will add to productive capacity in 2019 - 20.

Interest rates are in clear up trends across the board and do seem poised to go higher well into
next year as the Fed continues to tighten monetary policy. Inflation pressure is inching ahead and
there is no indication of a sharp acceleration of pricing as yet.

There may well be some slowdown in economic growth momentum as this year progresses, but
it may well be more modest than I originally expected if business inventories continue to grow
at a  moderate pace.

The earnings / price yield for SPX based on estimated net per share sits at 5.8% and is well above
the 91 day T-bill yield. This indicates that monetary policy is tightening only gradually and it may
not threaten the market near term.

Despite reasonably attractive fundamentals, I have the SPX as no better than fairly valued looking
right into 2019. So, strong upside from current levels rests on the development of some sort of
speculative zeal for stocks as the economic / profits expansion matures and the Fed presses
onward in its bid to "normalize" rates.

The SPX is struggling to regain sustainable positive momentum after coming off a generationally
strong overbought condition brought on by the big wave up over the latter part of last year. I
would like to think the SPX is set for a shot at the former highs over the next couple of months,
but I do not think it unreasonable to look for the market to complete a deeper correction that
would bring it to a more solid intermediate term bottom.

SPX Daily

Sunday, May 06, 2018

SPX -- Weekly

The historic and obvious overbought we saw at the end of Jan. '18 has corrected down to neutral.
The prospect of a significant increase in earning power is being realized via the large fiscal stimulus
programs enacted by the force of Trump / GOP. However, there is no evidence yet that it will add
to business sales or top line growth going forward. The Fed appears on track to tighten money
further as it shrinks its balance sheet and the monetary base and  promises to keep on raising short
term rates in a gradual fashion. Some Trump influence downside is being felt. The US is taking a
hard line with China on trade and is now threatening Iran that it may walk away from the nuclear
deal and perhaps re-impose sanctions that could boost the oil price further. And, even though the
Trump / Kim prospective summit is intriguing and may be positive, wrong turns could leave us
staring at additional saber rattling. As well, Trump and the far right of the GOP may be readying
to provoke a judicial if not a constitutional crisis over the Mueller investigation. Why, it has
almost become what we used to call a Thinking Man's market.

The bulls are left to put their heads down and plow forward. Longer term momentum measures
are rolling over, but the market has drifted from big time overbought down to neutral, is holding
support at SPX 2600, and is maintaining its uptrend off the 2016 low. There are no clear signs that
a recession lies nearby and the inflation rate is not threatening yet to take off higher. Moreover,
if you accept liberal valuation standards, the SPX is fairly valued.

SPX Weekly

Monday, April 30, 2018

SPX -- Monthly

As indicated in the Jan. '18 posts, the SPX in the 2800s hit a generational overbought reading which
suggested little intermediate term or 3 - 6 month upside. At 2648 today, the market remains in
correction mode with significant support at SPX 2600. In the briefest of summaries, all the
fundamental indicators I study suggest only very mild, perhaps sluggish, progress from here this
year. Looking out through mid - 2019, I have the SPX fairly valued at 2720, or 2.7% above the
current level. Taking a longer view of the chart, the recent downturn in momentum is the first since
the end of 2015, and offers little comfort.  SPX Monthly

The US has to continue to work through a very troubling Trump presidency during a period of
a maturing economic expansion. Going back to 2016, I have argued that this guy is a basic,
textbook case of egomania who, through his impulsiveness and overwhelming sense of self
aggrandizement, can wind up doing some good things and some very bad things. Given how
far the market has come since the very dark days of 2008 - 2009, I would be delighted if the
SPX could hold the mid - 2500s through his term. 

Thursday, April 26, 2018

Oil Price And The Real Economy

I accepted the end of the end of the decline in the oil price in early 2016. The steady bull run in oil
has been obvious for all to see since then. However, I did not think that oil would approach $70 bl.
until some time over the second half of 2019. So, by my lights, the price is well ahead of schedule.
Sharp, extended run ups in the price of oil are rarely good for the real economy or the stock market.
Net oil consuming countries such as the US experience net income and wealth transfers to net
producers during such periods with a sharply rising oil price acting as an inflationary tax on
consumption. Too, fast oil price appreciation can lead the Fed to punish the economy with
tighter liquidity and higher short term interest rates.

These developments can punish both business earnings and p/e ratios and flatten the yield curve.

I would not hazard a guess as what the negative tipping point for the US will be if the oil price
continues to march substantially higher. Moreover, the US is now in a position to export higher
levels of hydrocarbons which will be a positive offset to its continuing dependency on imported
crude. Suffice it to say, that at some point before too long, the rising price of crude will begin
to cast a shadow on the economy and Fed monetary policy as well.

WTIC Weekly

Monday, April 23, 2018

Oil Price

The oil price is entering its third year of recovery following the big bust. The bull case has argued
that a faster growing global economy coupled with production cuts from OPEC / Russia would
allow a massive build up of crude inventories to work off steadily, thus allowing the industry to
eventually return to a reasonable balance between supply and demand. the hope has turned into
reality as stocks have dwindled from huge down much close to normal based on a five year average.
For the most part, the price has advanced in an orderly fashion. In late 2016, most industry buffs
were projecting the price of crude to stay in a range of $40 - 60 bl. well past 2017. Amazingly,
given how hard it is to forecast the price of oil, crude has remained in that range until recently.
With promises of further production-side discipline and the reduction of stocks still underway, a
new consensus has emerged in the industry with oil now seen as rising to $80 bl. in the months
ahead.  WTIC Daily

With the WTIC having just topped $68, the market is a hefty 22% above the 200 day m/a. It is
not overbought on many other technical measures, but you need to know that this is a very crowded
trade, with speculative long futures continuing at record levels. Moreover, with the big petrol build
now nearly completed for the year, the market is about to enter a very choppy period on a seasonal
basis and it may be tricky if you want to chase the recent burst.

Production reductions over the next six months or so could have a disproportionatley large
positive impact on prices. But note as well that since the industry is now firmly in the black on
the production side, there is a little extra incentive to cheat.

More on oil later in the week.

Wednesday, April 11, 2018

Stock Market Update

The bull case is as follows: Top line business sales growth momentum may slow some this year,
but the outlook for earnings continues excellent reflecting large corporate tax cuts now on the
book. Interest rates may rise further, but since inflation pressure remains quiescent, the Fed will
remain on a gradual course of tightening monetary policy. There is no excess liquidity in the US
system, but there may be some further rotation out of a weaker bond market into stocks. Moreover,
share buybacks could surge over the next fifteen months as companies tap larger cash flows. And,
there may be additional foreign interest in US stocks. There are exogenous factors to keep a close
eye upon, including a possible heavy duty bi-lateral trade war with China, fallout if the talks with
North Korea fail, a Syrian conflict that could go beyond its borders and a crisis if Trump blows
up the DOJ and the Mueller inquiry.These clouds could clear up rather quickly, giving investors
a clean shot at the prior top over 2800 SPX, or they could linger and force market players to make
further adjustments.

The SPX chart reflects a cloudy crystal ball. There is a bearish falling wedge pattern forming, and
the SPX is struggling to hold the uptrend in place since early 2016. But the market is holding
above its 200 day m/a and a 2600 support level.  SPX Daily

Thursday, March 29, 2018

SPX -- Monthly

The bull market continues, but with a tough first quarter of 2018, the market is barely holding its
uptrend. Moreover, for the first time since late 2014, the longer term momentum indicator (MACD)
has turned down. This indicator can whipsaw in the months ahead, but the downturn is bearish
for now. Note as well that there has been no negative cross in the MACD yet, so that there is no
confirmation of a downtrend ahead.  SPX Monthly

My weekly cyclical fundamental indicator has been in an uptrend since early 2016. It has turned
sloppy during Q1, but is not headed down fast enough to cause much concern. The US economy
may be peaking in terms of growth momentum and this suggests we may see some slowing of
top line sales growth ahead as well as some pressure on pretax profit margins. On the plus
side, the business sector will benefit from a lower tax rate and earnings should continue growing.
The Fed has turned more restrictive in policy. It is shrinking its balance sheet and the monetary
base has flattened out as well. Bank asset growth is modest relative to economic momentum so
that, in all, there is insufficient liquidity growth in the system to support rising stock prices. This
leaves the market dependent on share buybacks by companies and foreign inflows from offshore
investors. With short rates rising, there is a challenge ahead for the SPX p/e multiple. On the
plus side a cyclical advance underway in  inflation has been strikingly humble. You can also
watch to see if equities might benefit from rotation out of bonds if inflation perks up a little more.
In all, thin porridge for the bulls.

Monday, March 26, 2018

SPX -- Quickie

News that the US and China were exploring a trade agreement behind the scene triggered off a
relief rally today, with the SPX rallying off the 200 day m/a trend support. Traders also liked the
double bottom on closing lows.   SPX Daily

We will just have to see whether the two parties can up with a suitable compromise. In the mean-
time you can watch to see if the SPX can rally enough to reverse downtrends in the 25 day ma, and
the RSI, MACD and trend indicators. You need to take care here because the first attempt to 'buy
the dip' in early Feb. did not work, with this indicating a loss of the level of high confidence we
saw throughout last year and into Jan. of '18.

Saturday, March 24, 2018

SPX -- Weekly

Back in late Jan. '18, I argued that the SPX had carried up to such a large premium to its 40 wk. m/a
that history showed there was but in a 1 in 4 chance it would trend significantly higher over the
next six odd months or so. Since then, it has gone into corrective mode and, based on the RSI and
stochastic measures, it has fallen from heavy overbought down to neutral. The market is again
testing its 40 wk. m/a, and all of the premium has gone out of it. Momentum, based on the MACD
reading, is still elevated but is now negative as it trends down. The SPX is now sitting right at
longer term trend support and a further sharp downward break would signal a termination of the
advance at least until a new base at lower levels could be established.  SPX Weekly

That the market did not break down last week but exited as a cliffhanger instead suggests the bulls
are trying to buy time to see if investors now think rising short rates and a protectionist trade action
between the major economic powers -- the US and China -- cloud the outlook sufficiently to
warrant further price erosion. Restrictive trade action so far is mild enough that the market should
not worry, but we do not know if further actions could come along to create more substantial and
palpable risk. I know what should happen between the US and China on this subject, but what is
likely to happen is the obvious critical thing. It will be very interesting to see if traders are
confident next week to rally the market based on the current prospect of only modest economic


Sunday, March 18, 2018

March Overview

The best guess here is that the US economy is experiencing an interim momentum peak with a
mild and short lived slowdown to follow. This peaking process will be the third one since the
economy began to recover from its deeply recessed base back in 2009. My indicators and
observations of inventory levels now suggest the slowdown will not be as long or as steep as they
were following interim peaks in 2011 and 2014. Business profits and real disposable incomes are
benefiting from the large tax cuts recently enacted and slowdowns here will likely be far less
pronounced. With the quantitative tightening of monetary liquidity (QT) having displaced QE,
the stock market will likely remain focused on economic momentum going forward so any
negative reaction in the stock market to a slowdown should be mild.

Trump's first round of protectionism  -- duties on imported steel and aluminum -- looks like it
may resolve into an old fashioned extortion program. the second wave may target China's large
export balance in the US and could be tougher and involve some nasty blow back from China.
This potential trade spat could shake stock market confidence more significantly.

The indicators still show no very substantial inflation potential ahead for the US. My longer
range indicators suggest a much stronger ramp up of inflation pressure, but this is yet to show

I am expecting the Fed to continue to raise short rates in a temperate manner, but I think the
Fed could turn more aggressive later in the year if economic growth picks up again as I expect.

It will be instructive to see if the economic slowdown out ahead in the short run triggers a further
downswing in longer term Treasury yields.

As of now there seems to be little potential for the development of the kind of cyclical credit
squeeze  that normally pre-dates a recession. Liquidity growth is slowing, but short term credit
demand remains exceedingly mild still with worthy borrowers preferring the long end of the

Bobby Three Sticks (Robert Mueller 111) continues to close in on Trump and as he does, there
may be further push back from The Donald. This could prove disconcerting to the markets if
some sort of judicial crisis emerges.

Monday, March 05, 2018

SPX -- Update

The up leg underway since early 2016 remains intact and provides trend support around 2600. The
upward acceleration in the SPX since the 2016 election has not broken in any decisive way, leaving
the SPX with a shot at regaining the highs set in Jan. The market is not at all stable, and if it is to
move higher, it needs to come up through the 25 day m/a with an up turn in the "25" to follow.
 SPX Daily

So far, the SPX is up around 1.7% on the year. It seems as if we have had year's worth of action
all rolled into a little more than two months' time. Most market strategists, although bullish on
the outlook for this year, also foresaw increased volatility as market players contend with the
expected combination of rising interest rates and profits coming along together. For most folks,
that scenario has not changed, nor has the consideration of an acceleration of inflation as the
economic expansion matures. In short, the thinking out there remains that events could lead to
occasional wobbles of the SPX p/e ratio. My fair value model suggests a single figure of SPX
2720 through mid-2019, which is where the market stands now.

There is concern that should Trump apply tariffs to both aluminum and steel imports, a larger
trade war could ensue. However, lets see if he is running a bluff first.

The lack of stability in the market at present calls for you to double check your convictions.

Monday, February 26, 2018

Big Trouble In Big China?

China plans to amend its constitution to  eliminate term limits for the president.  If so, maybe
Mr. Xi can serve more than two consecutive terms. Given China's imperial legacy and the long
run for Mao and Chou, the knee jerk response from outsiders is that Mr. Xi wants those
imperial trappings and may signal a new cult. Could be. And, since this is a bull market, look
for China apologists to put a positive spin on this transition if that is all it is.

To be a contrarian, I offer a different and more dangerous assessment. Suppose the younger Party
climbers and technocrats have indicated to Xi that his generation has created an obvious financial
mess in China and that it is Xi's job to clean it up. There is no new "Great Leap Forward" for
China unless The Party straightens out the country's finances first. A genuine reform transition
would involve efforts to gain control over China's finances, specifically debt creation.
That cannot be done without creating pain and economic and financial fallout that will extend
beyond China's borders. It cannot be accomplished without a president that is in a very strong
position and who can command the Party rank and file to do the bidding necessary to turn
this enormous debt laden boat around. Mr. Xi already tried and failed to generate a super bull
market in equities to balance the debt. Recall that China had to make open market purchases to
keep its equity market afloat. And, if China continues to leverage up and create new entities to
take on its bad debt, the result will be accelerated capital flight, the destruction of its currency
and bitter recrimination from the international markets.

Now, if all Xi wants to do is to become the imperial Xi, that could have dangerous unintended
consequences as well, including an eventual and destabilizing mutiny.

Do not ignore this decision. Comments are invited and welcome.

Saturday, February 24, 2018

Commodity Price Index

The last bull market in commodities ran from the end of 2001 through early 2008. Paced by very
rapid production growth in China, inventory hoarding and intense financial speculation, the CRB
rose from a low of 170 to the 470 level before collapsing over the balance of 2008. The market
staged a strong partial recovery over the 2009 - 11 period, reflecting a global economic advance
from deep recession, a massive fiscal stimulus program by China, and speculative inventory
pipeline rebuilding and the return of intense financial speculation. But, the bear market endured
until early 2016. Over 2011 - 2016, global economic growth was modest, inventories were
slowly unwound, and speculators turned strongly to financial assets.

Materials production capacity expanded rapidly over the decade through 2010, and more recent demand has not been strong enough to take up the slack. Commodities pricing has also been adversely affected by the growth of synthetics, recyclables and new production and and
consumption technologies.

For many years, there was price support for the CRB around the 170 -200 area, but a reading of
200 on the index has now become resistance!  Weekly CRB

As seen, the market has been recovering from its multi-year low of around 160 set in early 2016.
Faster global economic growth over the past couple years has not been sufficient to set off a strong
sustainable rally in the CRB. From a longer term perspective, the CRB is still in a bear market.
The current extended base looks promising, but the index has not strengthened sufficiently to
challenge longer run trend resistance. To attract stronger trader and investor interest, the CRB
needs to break above the 200 level and challenge that first significant hurdle at 230. The CRB
is at huge discounts to the stock and bond market price indices and would attract strong interest
if there is finally a stronger positive response to a swifter global economy.

Tuesday, February 20, 2018

Gold Price

My long term view on the gold price remains that gold will  primarily stay a range bound
trading vehicle until investors become more confident that the global economy is transitioning
from a deflation prone period into an inflationary era when global plant and service operating
rates are more easily challenged by rising world economic demand. A tighter operating
environment tends to foster stronger wage growth and stronger competition for materials and
commercial resources. The very deep global recession and modest economic recovery that
has come along in its wake has left a legacy of excess production capacity and a trend of volatile
but decelerating inflation.

Although the cyclical fundamentals for the gold price have been positive since early 2016, and
there has been a rather mild cyclical acceleration of inflation pressure, it has not apparently
been strong enough to support a sustained rise in the price of gold. Since gold began to recover
in early 2016, the interim price lows have trended higher, but clear longer term price resistance
has formed in the 1375 - 1400 area.  Weekly Gold Price

The gold price is inherently volatile and price action can far outstrip a fundamental approach
to trying to determine a reasonable price for the metal. In recent years speculative surges have
been contained even though gold has fared decently off its 2016 low. The bottom panel of the
chart shows that gold's price has been deteriorating relative to the stock market for a quite a
while. That could change if further economic growth brings increased inflation pressure going

Sunday, February 18, 2018

Stock Market -- This Is A Little Odd

While folks debate the near term future of the market, I content myself with an oddity in the
market internals. The TRIN measures the amount of selling pressure in the market. A high TRIN
signals heavy selling pressure and a low TRIN signals light selling pressure (low volume per issue
sold). During the extended period of market weakness over the latter part of 2015, the 13 week
TRIN reached a high of 1.6, indicating the accumulation of heavy selling pressure.  Weekly TRIN

Notice that despite the dramatic sell-off over the earlier part of February, the 13 week TRIN has
continued to trend down to low levels, and since it's now below 1.00, suggests the continuation of
accumulated net buying pressure through 2018.

Saturday, February 10, 2018

SPX -- Update

According to my cyclical valuation work, I have the SPX as fairly valued at 2610 for 2018 at 2720
through mid-2019. The modest increase in valuation product into next year reflects another year
of positive earnings direction offset by a reduction in the market's p/e ratio to reflect a higher
inflation rate of 3% by mid-2019. Although the inflation pressure gauges currently remain in
rather humble uptrends, that should change as the large fiscal stimulus programs kick in to boost
an already maturing economic expansion. there could very well be an interim period starting in
a month or two when the economy temporarily slows, and market players  run-up stock prices in
the erroneous assumption that "Goldilocks" has returned to preside over a period of more modest
growth and continuing low inflation. If such a strong rally occurs, there might be a classic
"get out " rally to reduce equity exposure.

Despite the current correction, the stock market remains strongly overbought on a long term
basis and mildly overdone in the intermediate term. The main trend of the market remains in
bullish mode with intermediate trend supports around 2600 on the SPX. Longer term trend
support stand around 2500.  SPX Weekly

Do not ask me where the market is going over the couple of weeks. However, by my conservative
trading discipline, I would give the market a hard look for a long side fling if the stochastic
measure (bottom panel of the chart) drops inside the 20 level.

Monday, February 05, 2018

Stock Market -- Historic Overbought Deflates

Yeah, well it was a market that became one of the most overbought in history. The best the bulls
could do was express some edginess the weekend before Groundhog Day (Feb.2). Little did folks
know that Punxatawny Phil  down in Pa. was not only forecasting six more weeks of winter, but
an Eagles win in the super bowl as well as a blowout of the parabolic move in the SPX that we
all witnessed in. Jan.'18. Easy come, easy go.

Now the market is assuredly on the oversold side and we'll just have to see whether the boyz can
rally around the fact that the SPX closed well off its low today or whether exhaustion has not fully
set in and there is more to go on the downside in the days ahead.

Several weeks back, I opined that if I stretched it, there was a case for the SPX to trade around
the 2610 level in 2018. That speculation immediately looked foolish as the market rocketed
above 2870 by the end of Jan. The rapid decline in the SPX to just below 2650 makes the 2610
estimate of fair value look less foolish.  SPX Daily

Market players are going to have to decide whether the prospect of higher business profits this
year will also include faster inflation and higher interest rates and what consideration of the
latter factors might do to their expectation for the SPX p/e ratio. I think it is fair to say that
most investors did not envisage crossing the p/e challenge bridge until well later in the year.
These issues may fully occupy investors if they keep their blinders on.

I happen to be entertaining a darker vision for the near term future. Not only is the US Gov't.
barely functioning, but I suspect Trump may consider some politically dangerous maneuvers
if the Mueller investigation closes in on him and his family especially. I have some fears here
involving challenges to our constitution in this era of sharp political division and given how
I view The Donald's history, I do not regard them as baseless. I also do not know whether
the serious misbehavior we see underway in Washington is bothering the market already and,
I do not know if the market will grow more troubled as matters get more heated as the Mueller
investigation proceeds. Let each of you decide how much we should pay attention to this
sad spectacle of America in worsening political conflict.

Friday, January 26, 2018

Stock Market -- More Amber Lights

As the SPX continues to surpass generational overbought records, I have a couple of more
signals to keep in mind. The SPX is now trading at a 13.4% premium to its 40 wk. moving
average. This is not a record, but history shows that when the market exceeds its 40 wk. m/a
by more than 10%, the odds are only about 1in 4 that the market will make good further progress
over the next six months or so. This signal does not imply a bear market will be coming along,
but a correction of substance is certainly not out of the question. Also, with a powerful run-up
in place, the intermediate and longer term price momentum indicators (ROC% below) are
getting extended. They also portend but do not fore-ordain a discontinuation of momentum
uptrends ahead.  SPX Weekly

The SPX has also turned parabolic in this powerful rally. It has not and need not complete
its move, but for a long term veteran of the markets, such levitation is absolutely fascinating.
I have done markets bubble measurement over the years, and it is very hard to spot one in the
early stages. The trajectory up for the SPX is a bubble trajectory, but the SPX would have to
reach 3300 this year and, perhaps, 4100 in 2019 to qualify as a fully blown market bubble.
Bubble talk does not scare many players anymore because of the idea of how much money can
be made during the flight higher. Moreover, money managers can lose accounts quickly if
they do not play the bubble. That's called career risk, and it surfaced broadly in 2000. It would
be odd indeed to have a market bubble so soon after the 1996 - 2000 event, but these are
loopy times for the US.

If the market takes a holiday for a couple of weeks just ahead, but then resumes a its strong
trend higher, central bankers should start to feel the heat to tamp down the advance. Greenspan
warned about the last bubble in late 1996, then quieted down and wound up as a drum major
leading it higher.

Finally, do not forget The Donald. He has fucked up more than party with his peculiar


Wednesday, January 24, 2018

US Dollar

I have been bullish on the dollar since the end of the deep recession of 2008-9. The long term view
was that the dollar could rise from the deeply depressed low 70s level back then to the 100 level
by 2020. I did not posit faster economic growth than the world could muster, but that the US
balance of trade would gradually improve reflecting increasing fuel efficiency, rising domestic
hydrocarbon production and a continued slowing of real consumer spending growth on the basis
of less favorable demographics. The rise in the dollar up to the 105 level by the end of 2016
represented a considerable overshoot of my projection. $USD Daily

Slow global economic growth in the intervening years led to a contraction of global trade and
favored the dollar by too large a margin. The sharp decline in the value of the dollar since the end
of 2016 reflects stronger global economic performance, stronger trade, and some deterioration of
the US trade balance. In addition, the dollar was heavily overbought by the end of 2016.

The chart reveals that the dollar sits well above longer term technical support, and it is tempting
to extend the dollar's downtrend line significantly further in the months ahead. Since the end of
fixed exchange rates way back when in the 1970s, I have often been been surprised by the strong
volatility of the dollar and the other major currencies, so far be it from me to argue that the
dollar is about to bottom out.

In my view, the dollar has dropped into a  reasonable area just below the 90 level, and with export
sales rising at a reasonable rate, I am reluctant to become too bearish now.



Friday, January 12, 2018

Stock Market -- First Greater Fools Arrive

The bull party has become a little more crowded with the arrival of the first greater fools. Among
the pundits in this crowd are those who proclaim that there is large sideline money that has yet
to jump in but is now doing so. The story goes that even after eight years of a rising market there is
a big crowd who are suddenly afraid they going to miss a huge run-up. When this kind of thinking
becomes mainstream as it last did over 1997 - 2000, you might as well put the fundamentals down
into your desk drawer. In fairness though, the market is hardly beyond rational argument yet, and
the recent trajectory of the SPX is still too mild to suggest a genuine bubble may be forming. It is
still just a burst of enthusiasm that has brought the market to an overbought that has not been seen
in over a generation. But, with money starting to flow into weaker, less experienced hands, volatility
could start to increase.

SPX Weekly

Monday, January 01, 2018

Stock Market

As we wheel into the new year, we start off with a fabulously overbought market and one which
is also mildly overextended on a very long term basis. My most liberal valuation measure has fair
value for 2018 at SPX 2610 based on a p/e ratio of 18x and eps of $145. On this measure, the
SPX is already discounting an extension of the rising earnings trend well into 2019. I fully expect
a nasty and deep correction at some point over the next two years, although I cannot make a
credible case for such as of now, as I have many more questions about the environment ahead than

My weekly cyclical fundamental market indicator is partly forward looking and partly coincident.
It rose very sharply over most of 2016 but advanced only mildly last year. I watch it in conjunction
with the PMI diffusion index for manufacturing. The PMI rose sharply from the 50 level in mid-
2016 to the very strong 60 area by late last year. I would point out that a 60 mfg. reading has only
been reached eight times since 1985 and rarely stays there for long. So there could be a loss of
economic growth momentum over the first half of 2018. If so, it could have a negative impact
on stock market momentum. On the positive side, my inflation thrust measures have turned higher,
but are up only rather modestly. Thus, the 18x p/e is not immediately imperiled on the inflation

Faster economic growth last year has reduced excess monetary liquidity in the system down to
zero. Normally, that is a warning sign, but so far, foreign inflows to US stocks have been a nicely
positive offset (It should be noted that US market cyclical tops often coincide with surges of
stock buying from abroad).

Short term interest rates are widely expected to increase by 100 basis points over the next 12 - 15
months, but that need not be a problem unless the Fed signals an extended continuation of
monetary tightening.

Interestingly, the Fed has been dragging its feet on the much heralded quantitative tightening
program and this has helped both stocks and bonds. We await whether They will turn more
aggressive this year and how the markets will react. Ms. Yellen is leaving the heavy lifting
to the new guy.

Finally, we have The Donald himself. He could behave very badly if special counsel Mueller
closes in on him of if the stock market and the economy do not treat him well.

Have a good new year and Godspeed.

SPX Weekly