December 14th, 2012
Edson Gould, deceased author of the once-famous Findings & Forecasts investment newsletter often said that "History always repeats, only the details change". This insight, a handful of carefully chosen technical indicators, and a deep understanding of crowd psychology enabled him to make some remarkable calls during his career. The graphic below, courtesy of Addogram, plots Gould's "Sentimeter" ("the market price of $1 of dividends") the inverse of the US 10-year Treasury yield, the gold price and an index of commodity prices. Needless to say he was quite right; "History always repeats, only the details change".
On a less than joyous day such as this, we all need a little cheering up. So here is John McAfee. Why? Just watch it.
Having just undergone the Presidential election and the democratic right of every citizen to vote and have their voice heard, we thought it interesting that of the world's major nations, the US citizen is in fact the second worst represented when it comes to government. The Chinese citizen, empirically at least, has a fractionally greater weight in their politician's actions. Only in India does each politician represent more of the nation's citizens. How long before we hear the chants of "Over-Taxed And Under-Represented"?
The last time the USD closed down (DXY -1%) on the week, and so did stocks (Dow/S&P/Nasdaq -0.25%), was the week heading into QE3 which marked the top of the US equity market for the year. With contracts rolling, the futures were roiling into the close as they were ping-ponged between new week lows and VWAP. The Dow Transports stood alone in their outperformance +1.1% (but were sliding rapidly into the close) and while most sectors were weak (Discretionary worst -1.2%), Materials outperformed (+1.66%) in a world of their own today. Silver slumped 2.4% on the week while Oil added 1% with gold flatlining since yesterday morning down around 0.5% on the week. AAPL, obviously, was the story today -7.75% in last 3 days to 10 month lows on huge volume today. EUR strength (+1.75%) dragged USD lower but was stymied by JPY weakness (-1.25%) as Treasury yields came off the week's highs to end 7-9bps higher on the week. VIX at two-week highs closed above Europe for the first time this year. Some peculiar volume and behavior in bond ETFs to note also (HYG saw biggest 2-day drop in a month) - markets feel very brittle up here.
Imagine a stock - best for the hypothetical exercise is probably a tech stock - rising for 12 years without interruption. A net gain every year, sometimes a small one, sometimes a bigger one, but nicely compounding at an annual yield of more than 17.13% (that's a devilish 666.67% in 12 years). What would people say about this stock? Would there be a steady stream of negative press trying to dissuade people from buying it? We somehow doubt it, although almost every investment that has seen a great deal of appreciation has its detractors (and sometimes they are right). When it comes to gold, one could certainly debate the merits of buying it at what appears at least on the surface as a high price. Gold bulls can only profit from examining bearish arguments, in order to see if they have merit.
Unless you bought Apple stock before Valentine's Day this year, you are now underwater. In what must be the best evidence of how quickly a liquidity-fueled over-owned bucket of over-optimistic extrapolation can see sentiment swing violently against it, AAPL just plunged back (on heavy volume) through its previous "generational low" from 11/16/12. At under $505.75 ($505.58), AAPL is at its lowest level since mid-February and is almost 30% off its highs on 9/21/12 as it appears the much poo-poo'd Death Cross may just have been on to something. WWJTD? and do not forget to ask WWDKD?
The Newtown, CT elementary school killing has already eclipsed Columbine in terms of sheer tragedy and loss of life, and may end up being of the most brutal slayings of innocent life, in US history. As expected, Obama is about to make a statement, most likely on today's tragic events.
“Unreliable News Sources”
As the following summary by the New York Daily News shows, both the frequency and severity of recent mass shootings in the US (and globally) have been getting bigger and more acute. Bring on the discussions as to why this is occuring in our day and age.
Update 3: Final sequence of events: as we expected, cops confuse name, CNN reports it, and media goes wild. From the AP: "Adam Lanza's older brother, Ryan, 24, of Hoboken, N.J., is being questioned by police, said the first official. Earlier, a law enforcement official mistakenly transposed the brothers' first names."
Update: the reason for the confusion is that the first name reported today by CNN and promptly carried by the rest of the media, Ryan Lanza, may be incorrect, and should likely be Adam Lanza. At this point until the police correctly identify the suspect it is probably best to ignore all further updates from CNN or otherwise on the matter.
The shooter has been idenitifed by CNN as one Ryan Lanza, 24, out of New Jersey. A quick Facebook scan has identified one Mr. Ryan Lanza in the 18-24 year old age group, out of Hoboken, NJ who lists Newtown, CT as his home city. There is one unconfirmed account of a suspect born in Newtown, CT and currently living in Hoboken, NJ, although it appears it is not the suspect in question. The mother of the suspect was a teacher at the Sandy Hook school, and she is among the dead.
For months now we have been 'told' that the US is the cleanest dirty shirt, that the US has decoupled, that US markets are the deepest and therefore will inevitably be the sinkhole of global liquidity; but things appear to be shifting - quite rapidly. This week has seen Europe's VIX (16.6%) drop below US VIX (16.8%) for the first time this year and Europe's Euro Stoxx 50 (Dow equivalent) is dramatically outperforming the US Dow (+13.5% vs +7.75% YTD). What is most dramatic, and highlighted by today's gap-like behavior in EURUSD, is the total dislocation between EUR and US equities. Are we seeing a wholesale capital outflow beginning as US' Fiscal Cliff fears trump any year-end shenanigans potentially coming from Europe (post-Summit)? One thing is for sure, certain media individuals will have to change their tune now Europe is the year's winner and the US becomes the center of the world's event risk focus.
The tactic of quoting CBO predictions was a constant during the Presidential campaign and now the Fiscal Cliff debacle. But the CBO’s long-term track record of constantly missing the mark seems pretty obvious to anyone paying attention. It’s like a weatherman in Seattle who tells you that every day is going to be sunny. At some point, a reasonable person just stops listening. The problem is that people have been deluded for so long into believing that economics is an actual science... and so it must be true. Well, for a time, so was bloodletting. Or the ‘ethnic sciences’. The whole argument is a clever deception, all to conceal a simple truth: that the US has long since passed the point of no return where they’re borrowing more money just to pay interest on money they’ve already borrowed. There is no victor in the debate. Only an entire nation of losers, and a tiny handful of people who see the writing on the wall and take steps now to prepare. Which are you?
Update 3: Adam had Aseprger Syndrome - a high functioning form of autism. In other words, watch as the debate rages over the traditional bogeyman of gun control, in a country with over three hundred million weapons, when we may well simply be talking about a mentally ill young adult.
Update 2 : NY Post now refuting CNN's initial report, and stating that the shooter's real name is Adam Lanza, not Ryan Lanza, who is instead brother of the latter. At this point there appears to be a ridiculous amount of confusion who did what, so it perhaps would be prudent on behalf of the authorities to double check this information before releasing it to the media.
Update: According to CNN the shooter's name is Ryan Lanza, out of New Jersey. Based on a White Pages reverse lookup there is an 18-24 year old Ryan Lanza living in Hoboken, NJ whose FaceBook profile lists Newtown, CT as his home city. Whether it is the same person remains to be confirmed officially.
Sadly, increasingly it appears that not a day, and certainly not a week can pass, in the US without news of some mass killing somewhere. Several days ago its was a mall in Oregon, and today it is a shooting rampage at the Sandy Hook Elementary school in Newtown, Connecticut. Here is what is known: the shooter, who CBS reports is a 20 year old from New Jersey, is reported to be dead. According to CBS 27 people are dead, of whom 18, Connecticut Post 27 people are dead, of whom 20 tragically, children. Among the dead are the principal and the school psychologist. The AP has already dubbed it "the worst school tragedy in American history."
Denial doesn't change reality. It only cripples our response to reality. Psychologists and behavioral economists have found that we deceive ourselves (conceal the truth) to serve our own interests. Perhaps this is why the mainstream ignores the Id Monsters in the shadows: shadow banking, shadow housing inventory and shadow liabilities.
We discussed the theory about the incessant stop-runs and 'momentum-ignition' that algos employ to suck retail dollars into their vortex. Now we have, from our friends at Nanex, a perfect example in reality. On the day of Facebook's IPO, when every man, woman, child, and rabbit with skin-in-the-game was hoping for this social monster to go to the moon and fix California's tax crisis, the algos were indeed hard at work all that day to try and ignite the IPO's failing performance. Sometimes, however, the magic doesn't work.