Beyond Market Turbulence

Leo Kolivakis's picture

Via Pension Pulse.

As a follow-up to my last comment, David Parkinson of the Globe & Mail reports, Despite the turbulence, strategists stay bullish:

The sight of slumping stock prices hasn’t shaken most market strategists’ confidence that the bull market still has further to fly. But they warn investors to buckle up – we could be in for plenty of turbulence.


In the wake of a selloff that has knocked the U.S. benchmark S&P 500 stock index into official “correction” territory (a drop of more than 10 per cent) in the space of a month while lopping 7 per cent off Canada’s S&P/TSX composite, strategists on Wall and Bay streets are reminding clients that the size of this correction is nothing out of the ordinary in a post-recession bull market. What’s more, they insist that the selling is being driven by fear rather than fundamentals – meaning that markets with solid growth prospects are merely getting cheaper and creating buying opportunities.


“It is difficult to be very bearish of corporate assets when growth is reasonably strong, inflation is low, margins are expanding, monetary policies are easy, and valuations are undemanding,” said economist Larry Hatheway of UBS Ltd. in London.


“In the first four months of this year, investors had become increasingly complacent to risk,” he said. “This was a market vulnerable to correction – all that was missing was a catalyst.”


However, that catalyst – a major sovereign-debt scare out of Europe – has re-awakened investors’ hyper-sensitivity to risk, a lingering effect of the credit crisis of 2008-09. The depth and speed of this risk adjustment does suggest that even if stocks can track generally higher in the coming months, they may do so in a very moody, volatile way.


“People are now a lot faster on the trigger in reducing risk. This increased volatility could be a byproduct of a new way of managing portfolios,” said Stéfane Marion, chief strategist at National Bank Financial in Montreal.


“But we have to keep things in perspective. We haven’t yet seen the collateral damage [from the European debt woes] that would upset global growth.


“In a world where credit markets remain functional, I don’t think the amount of selling we’ve seen can be justified,” he said. “The valuations we have right now are very reasonable.”


George Vasic, chief strategist for UBS Securities Canada Inc., noted in a research report that over the past 50 years, post-bear-market rallies on the Toronto Stock Exchange have all been met with corrections on the scale of what we’ve seen recently; the average pullback has been 13 per cent. Similarly, Pierre Lapointe, global macro strategist at Brockhouse & Cooper Inc. in Montreal, said the S&P 500 has routinely rallied in the year after the end of a recession, yet those rallies have all included a considerable correction within them, averaging 17 per cent.


“The next few months will remain volatile, but history tells us that the year that follows a recession is usually very profitable for equities,” said Mr. Lapointe, who reiterated his overweight recommendation on global equities.


David Bianco, chief U.S. equity strategist at Bank of America-Merrill Lynch in New York, is among several strategists who issued research notes in the past few days reiterating their earnings and stock-index targets over the next 12 to 18 months. His 12-month target for the S&P 500 remains at 1,350, a whopping 25 per cent above Tuesday’s closing levels.


He said the current S&P 500 levels imply a price-to-earnings multiple of about 12 times, far below the historical norm of 15 times. At normal P/Es, current levels are pricing in S&P 500 earnings of just $72 (U.S.) a share for 2011 – almost 20 per cent below Mr. Bianco’s “base-case” forecast, and toward the low end of his worst-case projections in the case of another global recession.


“Times like this make it clear that the risk equity premium is no free lunch, and volatility is gut-wrenching, even for the most long-term investors,” he said. “[But] we believe the best way to feel better during a correction is to buy some shares.”

I think volatility is here to stay. Itchy traders selling at the first sign of weakness, memories of 2008, and way too much risk management stifling the large portfolios, forcing managers to cut positions when the VIX rises, are all wreaking havoc on markets. Add to this market disinformation usually spread by large investment houses or their large hedge fund clients looking to capitalize on volatility, and you come away thinking that maybe the month of May was a harbinger of things to come.

But the reality is that US fundamentals have turned the corner. Allan Robinson of the Globe & Mail reports, U.S. consumers could give global stocks a lift:

The bull market needs some fuel and that will come once the U.S. jobs picture improves, incomes start to rise and consumer spending revives, strategists say.


“History tells us that a peak in the U.S. unemployment rate has the potential to sustain the equity rally – globally,” said Pierre Lapointe, a global macro strategist with Brockhouse Cooper. “We have calculated that every time the unemployment rate peaks after a business cycle, the post-recession global rally gets a second wind.”


Basically, investors bet on a recovery. “Investors realize if the jobs market gets better that means consumers will start spending again and that means profits down the road,” Mr. Lapointe said.


What is the market looking for now?


After three solid months of increased spending, economists are looking for consumers to take a breather and investors may need to be patient. Personal spending data scheduled for release Friday is forecast to have increased 0.3 per cent during April, compared with a lofty 0.6 per cent rise in March, according to a survey of economists by Bloomberg.


On the plus side, personal income is expected to have crept higher rising 0.4 per cent in April, compared with 0.3 per cent in March.


Another positive for U.S. consumers is that they have had no reason to be worried about rising prices. The personal consumption expenditures inflation data, known as the PCE deflator, measure price changes for a broad range of goods and services, excluding food and energy. The deflator also due out Friday is forecast to have declined to a 47-year low of 1.1 per cent in April, well below the U.S. Federal Reserve Board’s long-run forecast of 1.7 per cent to 2 per cent, according to BMO Nesbitt Burns Inc.


“The sharp turnaround in the labour market in recent months suggests that incomes will soon start to rise more significantly,” said Paul Dales, the U.S. economist for Capital Economics Ltd. “This will allow households to raise their savings rate without too much of a slowdown in consumption growth,” he said.



How will the market react?


So far stock markets have not reflected that bullish scenario. Investors have been preoccupied with sovereign risks concerns, which has driven stock markets lower. Last week the VIX, a measure of equity volatility, soared to 45.79 but this week it plunged to about 30.


“Only on five occasions in the past 25 years has the VIX reached such heights,” said Carmine Grigoli, chief investment strategist with Mizuho Securities USA Inc. Such elevated readings suggest emotional selling and on average the stock market has jumped 26 per cent in the following year.


And Brockhouse Cooper’s Mr. Lapointe said that on average six months after U.S. unemployment levels peak (in October, 2009) global markets increased 9.4 per cent, compared with the recent 1.1-per-cent decline. “One year after the unemployment rate peak, global equities were up 17 per cent on average,” he said.

It's easy to get all flustered in these markets. With volatility on the rise, more uncertainty over Europe's future, stocks coming off one of the worst months, it's no wonder everyone is pessimistic and bearish.

But if you look beyond the turbulence, and focus on the improving fundamentals, then a different picture emerges. To be sure, the big beta moves of 2009 are over, but going forward, there will be money to be made if you pick your stocks and sectors right. That much I'm sure of.

Below, William Greiner, chief investment officer at Scout Investment Advisors, talks with Bloomberg's Matt Miller and Carol Massar about the outlook for U.S. inflation. Greiner also discusses the outlook for U.S. stocks, corporate earnings and Europe's financial crisis.

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randomwalker's picture

I feel sorry for economist guys like Leo who are stuck on old models that dont account for the level of deceit and governmental cover-ups that make his rosy projections imaginable. I know Canada reported annualized GDP of 6% today, so you have to understand his coloured-glasses in terms of his environment..but unfortunately I believe, for him, there will be a rude awakening in his near-term future.

But hey being Canadian, he's probably a nice guy, Im one too, I just dont buy the shiny, happy pablum the bank economists spew and I KNOW Canada is not that much different; our dollar went from 90% backed by AAA govt bonds to 55% in a few months in 2008. 

Double down's picture

Ignore the bums Leo, you're da man.

And just for you, hurmm... 

Solar Beatches!!!!!!!!!!!

Cammy Le Flage's picture

Yeah!   Free Ice Cream for Everyone!

DisparityFlux's picture


The market has become a "behavioral sink":

Some are awaiting the exodus from this experiment, while others continue to play the game.

ZackAttack's picture

And, very quietly, Spanish bonds extend to a record +160bp vs. bunds today.

I think I've seen this movie before. I even know how it ends.

Matto's picture

Free ice cream for everyone?

Gromit's picture

And the points you make are worth repeating.

Government is very powerful, uncompromising and unrelenting.

Never forget that the Western Roman Empire continued if in diminished form 500 years past its apotheosis.


Leo Kolivakis's picture

LOL, I just ran across an economist during lunch. He was telling me that he's sick and tired of all the bears. "They refuse to see the data properly...I think they're incapable of solid economic analysis. And guys like Rosenberg write well but they've been wrong over the last year."

World trade is up 5.3% in Q1 2010. Canada's real GDP surged 6.1% in Q1. Bank of Canada will raise rates tomorrow. US payrolls will top 500,000 on Friday. Month of May was an anomaly because of European debt woes. Long-term structural changes in Europe are bullish! Stay bullish on America! I will come back hard at all you ZH bears tonight. By the time I'm done, I will make you all bullish - even the morons! LOL! I'm in fighting spirits!!

Cammy Le Flage's picture

Data?  What data?  Is it true because no data I can see (unless it is from the actual horse's mouth) is not manipulated or just plain wrong - there is no "real" data anymore. Are you a lawyer with a W.H.O.R.E.?  Sounds like it.   Ah well, ignorance is bliss until you are killed by it.  Sorry Charlie - this time - you are just plain not being realistic.  P.S. 24 miles off shore in LA is just crude oil - like motor oil.   Why do I know this?  Because I called the cell phone of the Environmental Rep. for the town in LA.  They are still a bit honest down there and publish phone nos.   Are you eating fish Leo?   I truly had a feeling you were being sarcastic.  Now, in surprise, I realize you are one of the pricks at the party that touches girls inappropriately and gets too drunk.  You are a proverbial buzz kill.   You will learn how wrong you are mighty soon.   At least us realistic folks are bit nicer than you.  We may even help you during your awakening moment.   Oil looks like blood in the Keys and it is coming.  That would be the Florida Keys Leo....Now is not the time for fighting spirits.  Now is the time for honest assessment.  

akak's picture

Leo is, to be quite honest, even worse than the "blathering idiot" another poster labeled him --- he is an entirely clueless and brainwashed bastard who actually believes all the lies and wildy manipulated statistics put out by the BLS as the gospel truth.  That by itself is enough to completely discredit him.

Leo, please go fuck yourself and die already.  And while you are at it, SHUT THE FUCK UP!

Leo Kolivakis's picture


As I've repeatedly told you, ask your shrink to increase the dosage. Experiment with lethal doses, to put you in a permant comatose. You couldn't analyze this economy if your life depended on it! Your insults show you're a classless loser, a hopeless waste case with zero intelligence.

akak's picture


While you are busy going about dying the long and painful death you so richly deserve, please look up the psychological term "projection".  You may find it relevant to your situation.

Please, Leo, the Marshmallow Peep of ZeroHedge, do pick up the pace of your demise, and put us all our of your misery.


Why Tyler Durden is willing to tolerate your incredibly blinkered and laughably, naively mainstream "analyses" of the markets here remains a total mystery to me, and I daresay to many others here as well.  If we wanted or required your demonstrated depth of insight and analysis, we could just as easily tune in to the profound oracular wisdom of Jim Cramer on CNBC instead of wasting time wading through your ever-expanding sewage pond of apologies for the crimes and corruption of the finanicial elite, admonishments and admissions of surrender to the same, and conventionalistic pro-establishment propaganda.

And you are correct in one regard: I make no claim to being able to meaningfully analyze our increasingly opaque, manipulated and corrupted markets.  But one thing I can do well is sense when that market IS increasingly opaque, manipulated and corrupted, and cash in my chips and get out of a rigged game in which the deck is stacked against me, but is stacked in favor of the dealer, before the inevitable gunfight explodes.  Of course, in your shortsighted and amoral way, you advocate that everyone continue playing with the thieves and cheats, because after all "it is the only game in town".  If so, then I choose to play NO game at all.


Leo, if you are not one of the sociopaths who are actively destroying our economy and society, then you are a willing surrender monkey to them.

Chupacabra's picture

Lighten up, man.  I agree that Leo's analysis is ill-formed and I am playing the market 100% differently than him, but wishing the dude a long and painful death?  Come on.  Just be glad you have somebody on the other side of the trade . . . and never invite him to dinner.

akak's picture

Well, Chupacabra, if you will read from the top of this thread, you will clearly see that it was Leo who first wished death on me --- I  merely returned the compliment later on.

Cammy Le Flage's picture

Nigga.  Paaaaahhhhhllllleeeeeezzzzzz.

Cammy Le Flage's picture

Twot No. 2, and you were doing so well.....

Leo Kolivakis's picture


MS or no MS, I can still outwit you any day of the week. You're an intellectual plebe. A nuissance on ZH, or of many fleas that I wash away at the end of every day. If I wasn't on ZH, it would be lopsided "shy is falling" analyses which so far are plain wrong. Now, go away, crawl under your rock, and stop trying to take me on. You're too hopelessly dumb to take me on.

Cammy Le Flage's picture

Sticks and stones break bones .... but names never hurt anyone.  Now how in the world can you say you are so smart with that kind of response?   Memories of a fat kid spitting in the playground come to mind..........Oh, and it is not a memory of me.

akak's picture

Oh, what mortal wounds I suffer!  Your Olympian intellect and wit leave me devastated!  How shall I ever endure the shame of such an overwhelming thrashing!

It is funny how oblivious you are to the laughingstock you continue to make of yourself, Leo.  But that is just par for the course when it comes to arrogant and self-important narcissists.

Oh, and by the way, nice touch in playing the pity card by gratuitously throwing out the mention of your MS.

Sorry, but it doesn't work with me.  You have earned only my contempt.

Leo Kolivakis's picture

Pity card? I don't need anyone's fucking pity, especially not yours. I can handle all of you ZH fleas any day of the week. You're a peasant, a loser who probably never made money on his own. We'll see who gets the last laugh akaka.

Cammy Le Flage's picture

Now I am confident that you are unable to read.  No pity there at all. 

Leo Kolivakis's picture

I am replying to akaka, douche!

akak's picture


Classy, as always Leo.

I'm surprised you don't just post more scantily-clad women by way of reply.

Cammy Le Flage's picture

Who said anything about pity twot?

Cammy Le Flage's picture

Remember Akak - he is the loser who ruins the party.   He will learn.   It will hurt him more than it hurts us.   Especially because he does not even believe what he says.   Bitch please.  And, he is no laughing stock.  Plain embrassthefuck-ing.  No wonder Earth is in this shape as well as our species.  Leo baby.  It is time for you to stop talking or you will hurt yourself further.  Ta. Ta.   Said the spider to the fly.

mbasham's picture

I am so tired of Leo. I was going to write something pithy here, maybe a little insulting to Leo , but then I thought why? Hasn't he suffered already, as I assume he is now under the "if I can just get back even" disease, after losing a sh#tload of money in 2008, and he is destined to lose a lot more in 2010 and 2011. Please Leo, put all your money into equities, if you haven't already. I hope ZH keeps LK as a blogger,  because when we finally have blog entries from LK like, "equities are inherently risky assets that are unsuitable for most portfolios" or "equities are suitable when dividends paid result in a yield that is several hundred basis points above risk free treasury yields in order to compensate for the additional risk", then I will be investing in equities for the long term again.

Gromit's picture

If you're tired of Leo, why do you read his stuff?

And don't worry about hurting his feelings, he's combatative to a high degree.

He has been through a life changing experience with a debilitating disease.

He has chosen hard work and optimism as his therapy, an inspiring choice. While I don't agree with much of what he says I'm happy to have an intelligent bullish point of view represented frequently here.

Nihilarian's picture

1. If you're tired of Leo, why do you read his stuff?

2. And don't worry about hurting his feelings, he's combatative to a high degree.

3. He has been through a life changing experience with a debilitating disease.


1. How can anyone know if an idea is right or wrong without first reading it?

2. If so, why doesn't Leo respond to any material posted by Tyler?

3. Whoever is attacking Leo's personal life or is using ad hominems, well then that person is an asshole. But having difficulties within one's life shouldn't be a ticket for that person's ideas to be uncontested, or for anyone that disagrees with Leo to be emotionally guilted into agreeing with Leo, not on the basis of his logical conclusions, but on the fact that he has had daunting challenges in his life.

My suggestion is to keep your eye on the ball. Emotions flare, people throw jabs at each other, and that's understandable. But keep the insults above the waste  -- if you are inclined to throw insults, insult the ideas, not the person.

doggings's picture

While I don't agree with much of what he says I'm happy to have an intelligent bullish point of view represented frequently here.

I would also be happy with an intelligent bullish point of view, however this is a million miles away from that

I am bullish on America, and the rest of the world. Period.

Leo at what point would you admit youve gotten it wrong? what needs to happen?

I would suggest that you define example events that would constitute you needing to change direction fast, and keep a close eye on them at all times, because you are so so wrong on the macro.

Brett in Manhattan's picture

I happen to agree that one shouldn't be a perma bull or bear, and I have no problem with Leo or anyone else expressing bullish sentiment.

My issue is with his duplicitous style of making forecasts and when they turn out to be wrong, move the goalposts and claim victory anyway viz. "I averaged down."

We all can get that from the msm via Jim Cramer.


RockyRacoon's picture

Averaging down with WorldCom was a real trip, huh?  Whatever happened to firm stops?

Somebody, I forget who, said, "I would rather try describing what an oyster tastes like than try to analyze Jim Cramer."   Says it all right there.

ZeroPower's picture

If you're too stubborn on both ends of the spectrum, you're going down hard.

Youre too stubborn on solar. Period.

Leo Kolivakis's picture

Yup, it's my conviction trade, and will deal with any losses or gains I incur.

Leo Kolivakis's picture

I was more bearish than all of you put together in 2006. Some research into CDO-squared and CDO-cubed scared the hell out of me. My bearishness and other crap cost me my job, so please excuse me while I ignore the plethora of silly comments attacking me.

When those Bear Stearns hedge funds folded, I knew we were cooked because people underestimated counter-party risk. But times are different now, and authorities will be quick to respond to any systemic risk.They are going to do whatever it takes to support banks and the financial system. I am not expecting a roaring bull market, but stocks will drift higher. You can chew me out until the skies fall, I don't really care. I am an independent thinker and will stick by my market calls.

Yes Chanos, Einhorn and Sprott are smart, but so are Tepper, Griffin and Cohen. Smart doesn't mean you'll make money in these markets. You got to be nimble, pick your spots, and read the tape carefully. If you're too stubborn on both ends of the spectrum, you're going down hard.

Nihilarian's picture

They are going to do whatever it takes to support banks and the financial system.


Crab Cake's picture

"But times are different now, and authorities will be quick to respond to any systemic risk. They are going to do whatever it takes to support banks and the financial system."

That actually made me laugh out loud.

That's good Leo, you're a funny guy you know that? 

Good times.

Here's a song for you Leo.

Always Look On The Bright Side Of Life - Monty Python - Life of Brian

Leo Kolivakis's picture

Crabby Cake,

Are you personally shorting this market? Would love to see your P& I said, always a smartass in finance who thinks they're bigger than the market. You will get crushed.

Crab Cake's picture

Oh Leo, 

I have nothing invested or saved anymore, it's all gone, and we live month to month at this point.  My wife and I after collectively having been laid off three times over the last two years have exhausted all available resources including retirement accounts to stay afloat. 

We had just gotten our wings spread, had decent jobs, gotten a first house, and had baby when the insolvency storm first started to roll in.

You are being blinded.  All you are looking at is the markets and technicals, and shuttering off the larger implications that History begs you to look at.  You read and post here all the time, I'm not going to bore you with a diatribe.  If you don't see what's coming, it's because you aren't looking or you are deluding yourself. 

So... You go play with your numbers and markets Booboo.  Me?  I'm just going to keep my family fed, the lights on, and the mortgage paid; it's about all I can do.  I don't have a profit and loss statement Leo, fuck you.  Fuck you, alot. 

Leo Kolivakis's picture

Well that explains your sour outlook on life. I feel for you and your family, but I'm not crying for you. I've battled Multiple Sclerosis fro 13 years. There are times when I struggle to walk 100 meters, but I say to myself, "fuck you bitch, I am going to beat you", and persevere no matter what. I suggest you do the same. Learn what really counts in life. The car, the house, the job are all bullshit things that can be replaced. Focus on your health & family.

(P.S. Been doing much better with my MS ever since I increased my vitamin D dosage to 20,000 IUs a day and still exploring CCSVI treatment).

Hungry For Knowledge's picture

Hi Leo, I'm now 60% short via TWM (a Russell 2000 2X inverse short fund).  We'll see, won't we?

Gromit's picture

Leo -

I'm glad to hear that you are doing well with your treatments.

You are indomitable and relentless in your refusal to give ground to your misfortunes and you have been a shining example to me with your unshakable optimism. I believe it's a reasoned and wise response to the barriers that you daily face so bravely.

Good luck to you!

Leo Kolivakis's picture

Thanks Gromit, appreciate it. Life is never easy, but you learn the value of struggling. Makes you appreciate life that much more.

DeltaDawn's picture

Keep up the good fight Leo. 

Wanted to ask you: Since S.S. and Medicare are not included in our %debt/GDP when they talk about 90%...I was wondering if other counties have obligations not accounted for in a similar manner.  We are at 500% of GDP (much worse than Greece, et. al, if this is the case). Thought you might know.

theprofromdover's picture

Leo -you seem to want to make money picking shells off the beach as the waves lap in and out. Seems to me a waste of your talents and capital.

It is you right and privilege of course, and to our benefit that you are confident enough to share your sentiments, so please continue and good luck to yer.

But, when you are old and gray in your rocking chair, will you wonder to whose benefit all that effort and obsessive timing was for.

If I were you, I'd take my money and invest it in real jobs, properties and businesses in your neighbourhood. You will get much more pleasure out of succeeding in that sector. I bet the margins are much better as well if you choose carefully.

GrinandBearit's picture

I don't post here often, but this piece is so incredibly ridiculous.

Leo, I don't know why you're ignoring everything that's going on around you, but you sound like a blithering idiot. 

You should put your resume in at CNBC.  They love ignorant, cheerleaders like you.

Leo Kolivakis's picture

Dude, money talks bullshit walks. I dare you to massively short stocks in the next 12 to 24 months. Go ahead, you'll get your head handed to you.

You can all read Sprott, Einhorn, Chanos, and a bunch of other smart guys talking up their books, but at the end of the day, too many other smart managers are long stocks and for good reason.There is a time to be bearish, and a time to be bullish. I am bullish on America, and the rest of the world. Period.

geminiRX's picture

Judging by how you were scraping a living a few years back, the bullshit is likely talking.

Cursive's picture

Who was bearish in 2007?  That's why the term "bulltard" was coined.  Buy and hold, stocks for the long term, don't fight the Fed....whatever.  I am not bullish on high deficit, high tax, high regulation, low growth corporatist states.  And you won't be able to hide in emerging markets when the deleveraging begins anew.  My two cents:  Prepare for the next big leg down.

Astute Investor's picture

According to Leo, only Leo was bearish in 2006 (see below).  With no regard to his own personal safety, Leo sounded the alarm of the impending crash.  His reward was to be coldly cast aside by his superiors.

I wonder if there are any facts that even remotely support this story?