Wednesday, January 29, 2014

Austrian Economics with Glenn Jacobs

 A review of Austrian economics today and through history.

Market Recap- Jan 29

As I stated previously, I was planning on making some changes to what and I how publish. Going forward, I plan on combining the price/volume movers, heat map, and notable ratings changes in to one posting. Right now I am calling it Market Recap, but I really dislike that name. It will likely change. So with that, here is a review of yesterday's trading

In yesterday's trading, the market experienced a snap-back rally after three days of viscous, high volume declines. For the most part, all sectors traded to positive side with most stocks in the S&P 500 participating in the 60 basis point rally. That is outside of the tech sector, whose performance was hit by the decline in AAPL shares.

The heat map reflects the price the increase in prices, with most sectors showing higher overall demand, sans telecom and utilities. That aside, total volume on the S&P 500 was decelerated versus the previous days turnover. More so, total volume came in on par if not weaker than average. Despite the demand surge shown in the heat map, the overall price/volume set up to me suggests that the 200 day moving average is in play.

High Volume High

Not a lot action for high volume names, which calls into the question the veracity of the price rebound. Looking at the names, I would be leary of OSK despite the the stock making new highs. This is as the rally was heavily faded. However, the gain in WAT may have some legs after the company beat the Street's guess on earnings. More so, the shares appear to offer some relative value.

Volume off the High

More names came off the highs in yesterday's trading despite the overall rally attempt. The most notable standout was AAPL, whose shares pierced the 200 day moving average. I think this puts the $450 price level as standout possibility as to where shares will trade. Additionally, the break in the GLW shares now suggests the October 2013 gap will close.

Notable Rating Changes

Although the price/volume tenor of the market remains negatively bent, the analyst community remains positively oriented. Who can blame them. Momentum and trend remain their allie. There were no notable downgrades or negative ratings actions that occurred yesterday.


No notable rating changes occurred January 28

Tuesday, January 28, 2014

Significant Rating Actions for Jan. 27

Today I am resurrecting the Significant Rating Actions piece for you, a piece that I thought held value but one where I wanted time to test some screens. This follows from a research piece I read that attempted to quantitatively discern value from analyst rating changes. The below list are for companies in the S&P 1500
who saw significantly positive or negative rating actions yesterday.

Positive rating actions

Negative rating actions

Inflation Expectations/ Equity Performance Correlation Breaks Down

I was highlighted to the relationship in the below chart just recently, but not only does it pass the visual check but also by the numbers. The chart below shows the inflation expectations, here shown as the Ishares TIPS fund (Ticker: TIP) relative to the TLT or the Ishares 20-year Bond ETF, superimposed against the S&P 500 on a rolling 6-month change since the beginning of 2008.

What stands out to me is the rather tight relationship, visually and mathematically. Addressing the last, the correlation between inflation expectations and the S&P 500 comes in above the 60% level, which is good for an explanatory power of about 40%. This suggests a definitive relationship between the two metrics.

What striking to me is that following the start of QE3 in September 2012, the relationship has broken down or at the very least devolved into a weak leading relationship. In my mind this suggests that the effectiveness of QE since QE3 has broken down and also slightly increases the risks of an equity market pullback in the next few months.

Bullish Signs For Gold, Yellen At The Helm

At the margin, traders appear to be getting more constructive on the yellow metal. However, that tends to happen with the path of prices.

Volume Off the High- Jan. 27 Trading Day Edition

I guess the last few days of selling culled the potential universe of names here. Of the names making the list, we an ETF (WETF) announcing a distribution and the stock of IDT, which caught a downgrade by a bulge bracket investment house. The last name is most interesting to me. CEMP was down significantly along with a host of other bio-tech names. However, I doubt that a stock would be down this much due to 'sector-related' trading. This looks like a story stock to me with relatively little value support. And you (I) would have to do some further research on the following comment, but the company sends up flags on my accounting manipulation screen.

High Volume High- Jan 27 Trading Day Edition

The number of names making new highs continues to dry up. In yesterday's trading, we only saw two names, shown below. Of the two names, GAME received a take private offer that valued company at least 15% higher than the previous close. The second name, CLFD, announced earnings that beat the street by $0.01, as order backlogs more than doubled over the year ago period. The stock looks like a momentum play in my opinion.

The US Living a (Keynesian) Lie- Morgan

Davide Morgan extolling many a view with the hosts form the Cambridge House.

A Seesaw Day- S&P 500 Price/Volume Heat Map

If I traded intraday, yesterday's trading action would have epitomized the opportune confluence of events, as the market seesawed back and forth on the plus side and the down side, ultimately ending down by about 50 basis points. Although the market closed lower, traders did reject the lows seen around mid-day. To me this suggests that we will see a bounce, albeit a bounce I had thought was coming yesterday.  Still, I would watch the quality of the bounce to see if an rally attempt has any legs. In any event, most the sector groups performance was weak in yesterday's trading, as seen below.

The price/volume heat map can be categorized as weak. Weak even for the sector groups that showed positive price performance, i.e. industrials, telecom, and utilities. The overall weakness on the supply/demand front, especially in the positively performing sectors, suggests to me the overall mood of traders/investors remains towards the sell side. However, we should watch the quality of the price/volume relationship in to any bounce.

Monday, January 27, 2014

Austrian Views Gaining Ground

Apparently, the Austrian School is gaining traction. Once thought as a philosophical dead end not worth time in argument or hardly even a scant mention, the New York Times went out its way to make an attack piece on the Austrian, Libertarianism, Rand and Ron Paul, the Mises Institute, etc. In fact, no one from the school of thought seemed spared from their attack.

Just look at the articles, found here, opening paragraph.

The libertarian faithful — antitax activists and war protesters, John Birch Society members and a smattering of “truthers” who suspect the government’s hand in the 2001 terrorist attacks — gathered last September, eager to see the rising star of their movement.

With an opening paragraph like that, you know that the New York Times will not paint the Austrian School in a positive light. However, an attack signifies that Austrian philosophical thinking is spreading and that it has someones panties in a bunch.  


How to Invest Safely in Today's Volatility- Biderman

Gold and bonds recommended, shorting stocks.

Gold Is Getting Its Groove Back

The comments in the video below are from The commentators highlight an important point and event as it pertains to a gold bottom- that the miners outperform the metal.

That said, the rally in the major miners and the metals (at least in the ETFs) seems to be on low volume levels, which makes me wonder the veracity of the rally. This is despite the strong rally, with volume support mind you, in the junior miners. As of the moment, I remain with my apprehensive bullish posture at the moment with the caveat that I remain to check my gold stock timing models since getting back to work.

The Fairydust Economy Built By Central Banks- Santelli

A couple days old but still worth watching.

Re-Thinking Progress- The Cicular Economy

I am captivated by the ideas presented in this video and the investment (and other) implications of how the world will look in possible getting from the present to what is shown. Remember, we are still running a large deficit as it pertains to our infrastructure needs.

QE's End- How It Will Play Out

As most Austrians and others not falling into the Keynesian madness, the end of QE will lead to systematic dislocation of capital in the markets. Jim Rogers, the very vocal and well know Austrian, tells it as it is.

via Birch Gold Group

I wish I was that smart or it was that easy. Back in the late 1970s, Mr. Volcker was told and he came in and said: “I am going to kill inflation because Mr. Carter has told me to.” And Mr. Carter was very clear that he had to stop inflation. I doubt if we’ll have that kind of scenario again but we would think, we would hope, that the Federal Reserve will announce, you know, that they publish their numbers so we can all see what’s happening. At the moment they are buying a trillion dollars a year – that’s a trillion with a “T” – of assets. Eventually we will see that they stop that if they do or slow it down. 

What will probably happen is that they will slow it down at first to see what happens, and if things aren’t too bad at first – and they probably won’t be too bad at first – well what is likely to happen is they will slow it down, things will drop, and then they will rally and the Federal Reserve will say “Hey, this is not so bad, we can do it.” And they’ll cut some more. Things will drop again and then rally, because it will take a while for people to really believe how bad it can get, or will get. And so eventually they will try to cut [QE], it will finally cause the collapse, at that point we will have a big change, because they will throw them out, whether it’s the politicians or the central bankers or whoever … will continue because they like it, they got the job because of the collapse and then we’ll finally start over. But it may be really painful in the meantime.

And via ET Now

The Federal Reserve will announce more tapering as the year goes ahead. I do not know the exact timing when they will start tapering again. The Federal Reserve thinks that the economy is doing better, and they can build some tapering. Eventually, the US markets and the world markets will go down a lot when the Federal Reserve gears up for tapering.

Remember the people in Fed are just bureaucrats and academicians, they do not know much about the real financial world. When markets start falling on tapering, the Fed will get scared and start printing more money. All this is bad for the global economy, as printing of money has never worked in the long term.

As I have shown, a reduction in the money supply will lead to disruptions in equity prices and dis-allocations across asset prices. I have shown this via the $40 billion float and pull back that Greenspan executed back before and after Y2K. What do you think a $500+ billion disruption will look like?

China Suffering from a Financial Crisis

The continuing interview of Jim Bianco by Charles Biderman

Ask the Exert - Peter Schiff, A Conversation with Sprott Asset Management, Part Three

Part three in the interview

Ask the Exert - Peter Schiff, A Conversation with Sprott Asset Management, Part Two

Part two in the interview

Ask the Exert - Peter Schiff, A Conversation with Sprott Asset Management

Part one of the interview

A Significant Sign of Weakness- Price/Volume Heat Map for Jan 24

Without a doubt, Friday's trading was a distribution day, as demand was essentially non-existent. This probably means you should watch for a bounce, which this morning's futures are indicating. However, watch the quality of this bounce, as Friday's trading action was telling in many respects.

First, the market came off by more than 2 percentage points, a large loss for the market as whole, and prices breached the 50 day moving avergae. More telling was the volume levels on the decline, as volumes not only accelerated on the day, but accelerated heading into the close and began in earnest after 1 p.m. on the trading day. This is telling as it indicates that the institutions were selling in to weakness. You probably do not need to look, but the price/volume heat fully reflects the day's weakness.

Week Ending Jan. 24- Significant Down Week

For the latest ended week, the S&P 500 was off by about 260 basis points, entirely due to the weakness in Thursday and Friday's trading. The sector groups were off across the board with a 20 basis point decline in utilities being the best performer. Utilities have been outperforming in the latest decline as treasuries bonds have been rallying hard. For example, go take a look at either (both) the TLT or the TBT. If you remember, I had turned positive on the treasury bonds roughly a month or two ago. Although I would expect the rally to continue in the medium term, I also expect a consolidation soon.

Looking at the price/volume heat map, demand was weak mainly on the increased supply in the last two trading days of the week.