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Making Sense Of A Market Which Is Now Completely Uncorrelated To The Strength Of The Dollar
Over the past three months it has become clear that one of the traditional staples of the second part of the bear market rally (the one beginning in July of 2009), the near 1.00 correlation between a weak dollar and a strong market, has broken terminally.
And even with the dollar surging as problems in Europe come to the fore, the market, after dipping temporarily in early February, has staged an almost complete comeback, which has left many scratching their heads as to what the cause for this uncorrelated market move may have been. An interesting summation from one of the more prominent economic skeptics, David Rosenberg, provides some answers not only to this question, but why an economy which refuses to improve, can lead to continuous stock gains.
We were told at a dinner last night with some clients and prospects that yours truly is far too bearish and that whatever good news there is out there goes under-reported. That was the view by a few. Then there were others who said that they get confused in those precious few times when I do report something positive over whether I am changing my forecast. Yesterday’s pledge to turn optimistic at the earliest opportunity is a case in point on that last point. You can’t win.
So I am going to say something positive right here and the answer is no, I am not changing my macro or market view, but merely providing some colour on why it is that the equity market refuses to go down even in the face of what has been a slate of disappointing economic news over the course of the past month.
First, dividend payouts are back on the rise. In fact, February was the best month on this score in two years with 47 companies in the S&P 500 boosting dividends or initiating a program; only one company cut. There is more on this file in the USA Today’s business section.
Second, stock buybacks are increasing — up 37% YoY in Q4 according to S&P.
Third, M&A activity is expanding — another sign of business confidence. According to Dealogic, the number of deals in the U.S.A. is up 13% so far this year, to 1,579 (and the dollar value has soared 46% to $144 billion). And the M&A boomlet has gone global with China and India playing a critical role (see Asia Setting Torrid Pace For Mergers on page B1 of the NYT). Half of the deals this year have been of the all-cash variety versus a year ago — and keep in mind that the S&P 500 nonfinancial sector is still sitting on a cash hoard of $932 billion (up 31% from a year ago — see page C1 of the WSJ for more: With Fistfuls of Cash, Firms on Hunt).
If there was an impediment, in addition to a murky economic outlook, it is valuation. There were revisions to the Shiller valuation data and the latest reading on the normalized real P/E multiple is at 20.64x, up from the 20.0x in February and 20.5x in January. The long-run trend is at 16.36x, suggesting that the S&P is currently overvalued by 26%.
And in advance of an NFP number tomorrow that is sure to be ignored if bad, due to "inclement weather", Rosie throws some sand in the eyes of all those who are terrified by the appearance of that mysterious and dreaded cold, hexagonal, cristalline, substance in the middle of winter.
As far as tomorrow’s payroll report is concerned, it may be more of a “clean” report than many are looking for, the reason for this is because the blizzards last month did not occur during the BLS survey period. According to John Crudel at the New York Post, the biggest storms were February 5, 6, 9, 10, 24, 25, and 26. When the BLS conducts its poll of companies, it asks them about the number of employees for the pay period that ended on the 12th day of the month (and the only issue is whether or not the person got paid, not whether they were actually at their desk).
Certainly, with volume continuing to be non-existant, to say that the
S&P is an indication of anything more than just what a few dominant
market players wish it to represent, is folly. If the NFP report tomorrow comes as a major surprise outlier, we fully expect volume to pick up substantially. And we all know what that means for the market.
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Just wait until it starts hitting the earnings reports. Of course, they'll just explain it away as a stronger dollar being good in the long run.
From cnbc.com: Pending Home Sales Fall Below Forecasts, Weather is Blamed
Magic...I got it now.
Something will have to induce the big prop desks to sell. That's my new thesis. Who the hell knows. This economy is in the crapper and the market is up 4 days out of 5.
Your comment reminds me of the 80's Japanese real estate machine. I remember that it got to the point where only the Japanese could afford the inflated asset prices.....the only deals were between themselves.....and then it popped, loudly.
Add to that 26% overvalue in P/E a little systemic risk, stir it up and you get SPX near 500 sooner or later.
"According to John Crudel at the New York Post, the biggest storms were February 5, 6, 9, 10, 24, 25, and 26. When the BLS conducts its poll of companies, it asks them about the number of employees for the pay period that ended on the 12thday of the month (and the only issue is whether or not the person got paid, not whether they were actually at their desk)."
The Big Lie, the spin, the confidence game, the Ponzi is not dependent upon facts silly man. It's dependent upon the perception of facts. Thus the extraordinary spin all week about snowstorms and their effect on the "numbers" coming Friday. The perception has been managed by predictive programming of the hive mentality.
Facts are for fools. Perception of facts is where the herd is directed towards, willingly I might add. The Hive mentality doesn't want to do it's own thinking. Can't as a matter of fact. It relies upon group think for everything it does, from what to wear to where to eat. No original thinking is required and is actively discouraged.
Silly Rosie, Trix are for kids and facts are for fools.
http://www.youtube.com/watch?v=qNUJsJMWB5I
<sarcasm off>
CD -- I agree with you completely. I don't think your second paragraph was sarcasm at all... I think it's fact in our current culture.
America et al are spinning! Reality is confounding all thoughts, in all relms of behavior. I can not believe the establishment's lies and trix, among other things, one being the blatant manipulation of the currentseas (currencies).
the ironicy that it's main ingridience include HFCS is confounding when it is considered that the name of the brand is "Trix". Now that I watched the rabbit eat the trix and then go hyperactive, I am considering also that it is ironic that the advertising new that Food Coloring causes hyperactivity. I did not know this as a kid so obviously I can not blame some of us, but the amounts of hippies that new about chemicals in foods was so slim I find it fascinating that the above comercial depicts what it does.
The market will go down when Lloyd and Jamie say it will go down. It's the "golden rule." Til then, enjoy the slow bleed up.
Try this on for size.....The largest SPY volume was in March, 09. If sold on April 1, 2010, will there be a huge capital gains tax advantage (long-term gains vs. short-term gains)? Just something I've been thinking about.
you are absolutely right.
Expect GS and JPM to unload starting March,10.
I understand that bookkeeping (i.e. entities, etc) tricks could turn some of these SPY holdings into ltcg, but I believe the REAL game these scum play is this:
Strategic large block buying at extremes or at quiet periods and dumping of larger blocks into the rallies they spawn.
I keep a SPY T&S block (>7500 shares) window open at all times. It is not unusual to see multiple +-10k share blocks "at ask" to stem a selloff or spark a rally. Then, inevitably, 50k+ (even500k) blocks selling "at" or "below bid" at higher prices minutes later.
There is always a "greater fool."
Very enlightening.
Interesting indeed,
especially when considering that even in the face of the most obvious and absolute truths - we choose to remain ignorant and oblivious.
People will simply believe whatever they want to believe - and that's always what makes them feel better.
And here comes the the single greatest April Fool's prank in history.
Recovery? Just kidding! APRIL FOOLS.
I heard on CNBC this morning that it's no longer a "stock-market" but a "market for stocks"...I think this sums it up pretty good. Nobody cares about the businesses anymore or the earnings....they care about flipping phony paper stocks to make a buck. The "buy and hold" long-term investor is a dead concept.
The truth of the matter is that the whole market is currently running on HFT and Fed liquidity.
You hit the nail on the head. ZH is trying to make sense of the markets through charts and analysis. When will ZH get with the program. There is no market. God, I'm a dumb fuck and I saw this many moons ago.
right on.
Somebody help me out there. OK I have actually agreed w/ Rosenberg and other more bearish analysts throughout the last couple of years. This has resulted in my portfolio being basically in an all cash position for going on 2 years now. All I have heard for 2 years now is that this rally is a bear rally, phony, not real, won't last and is due to crash at anytime. Well I'm beginning to run out of patience here.
The reasons to doubt this market advance are very freaking real, but it doesn't appear that billions of other peoples money agree with this. I don't really believe that just "a few" entities can push this market up like it has been pushed up.
At some point in time one has to take a position either long or short. Does anyone have any thoughts as to how long this phony rally can rally? If it's phony it can't run forever.
When you breakdown and buy will be a great sign that the top is in!
The market can stay irrational longer than you can stay patient...then: they gotcha!
However, according to simple charting principles, I believe that the S & P 500 is topping here. How long can that last? Who knows. One key tell is the Shanghai Composite Index. It has forecast American market drops over the past two or three years by dipping from four to six weeks before the S & P. This time, the drop could be more severe than previously. Beware.
The market will not climb higher than 1136.22 but it will probably churn in this range for at least a couple of weeks. Consider phasing into short positions in the S & P 500, such as using the SDS ETF over the next few weeks and add to the position as the market gives more sullen confirmations.
Best of luck to you!
In Shanghai, it is mostly big funds manipulate mass retail traders. In the U.S., it is alogs, Big wall street firms, hedge funds, and other sharks eating little fishes for business.
"If it's phony it can't run forever."
Not quite. At some point, actual reality will intrude upon the dream, like that damn alarm clock did this morning when I was just about to get my freak on with that Victoria Secret model.
The question is when and there is no real answer. It depends upon an intangible. How long does the average Joe (who is the one sustaining the Ponzi by not resisting) wish to remain asleep, disconnected from reality? Based upon personal experience, a hell of a lot longer than any rational person would ever think possible.
It's kind of like asking when an alcoholic will stop drinking or a compulsive gambler will stop betting. It's different for everyone but most likely when you can't get any more booze to drink or money to loose.
Good analogy. But may I take it a big step further. Because for the average alcoholic or gambler, there are clearly finite resources. While the alcoholic can exhaust these resources to the point where s/he is now a street bum, that doesn't stop the alcoholic, just greatly restrain him or her. With the compulsive gambler, it more clear cut. Once the house, job and all other resources are gone, there is little left to gamble with, now or in the immediate future. But this just turns the compulsive gamblers attention to resource gathering instead of gambling with resources. Either way, the compulsion is still there.
But for our society, which consists mostly of the great unwashed and asleep, the general population is being (willingly) enabled to remain asleep by outside forces, meaning government, which in turn has it's own set of enablers (gvt workers, military, corporations, banks etc) many of which are part of the great unwashed themselves. This is what gives the delusion such staying power. It's a self deception enabled by a nearly unlimited pocket book and the desire by the enablers to continue enabling.
I think that the numbers of the "great unwashed and asleep" are not as large as you think and is dwindling over time. Sure, there are those that will never wake up, but most understand that what they are being fed by the government is BS. The problem is that a great number of these folks, simply do not have a clue as to what to do about it. Take my father, who is retirement age (boomer) but his retirement funds are managed by his company which is 100% in equities. He says that he has no option until he retires, or the truth is probably, he doesn't know what his options are so he does nothing.
The phrase I hear from parents and the like, "There are smart people working on that."
".....but most understand that what they are being fed by the government is BS."
I use the word "asleep" to mean not engaged, not aware other than the most casual surface knowledge. Clearly many people "know" there is corruption and thieving going on.
One can be aware of something and still be asleep. In fact, part of the self deception we all practice at one point of another is to grant a certain acceptance to prove our awareness but still remain essentially ignorant on the matter and thus, for all intent and purposes, asleep. This allows the person to claim understanding but still have so little knowledge that s/he is effectively impotent and disarmed.
This is a defensive mechanism that allows for even deeper levels of denial. I've seen and heard people say the following. "Sure I drink everyday and maybe I even get drunk. But since I go to work everyday and put food on the table, I'm not an alcoholic."
Putting aside for a moment the unprovable (that this person is or isn't an alcoholic) the person is using their acceptance of their obvious daily drinking and drunkenness to reinforce the notion that since s/he can do other things, that aren't "that" bad when clearly they are.
This can apply to spousal abuse, sex addiction, whatever. It also applies the the "great unwashed masses" out there, who will allow for and even accept an obvious fact without fully internalizing the information. Knowledge implies and often forces responsibility, either for the knowledge or the consequences of the knowledge. Casual knowledge allows the sleeping to remain asleep while claiming they are awake.
The only part I'm having a hard time resolving is that "a plan" exists by outside forces versus society and it's delusion just represents a big Mandelbrot Set without any outside hierarchy.
Bing Bilderberger.
RSDallas, I understand your frustration. It sounds like you believe the equity market is moving on the whims of large market participants and not on an objective fundamental basis. Embrace that knowledge and conclude that you can A) Participate in a market where you pick a direction with the herd keeping a finger near the "Close Market Position" button or B) Not participate waiting for some "fundamental correlation" to return to investors decision making.
It's not billions of other people's money. Its a few firms with a lot of govt backing. Do what you will, but remember Warren's rule - he doesn't invest in things he doesn't understand (well, that used to be the case anyway)
"I don't really believe that just "a few" entities can push this market up like it has been pushed up."
Until 6 months ago, I would have agreed with this statement. But having been watching the intra-day charts very closely for the past year, I am now convinced that a small group does indeed have the power to do this. There are too many examples of well-timed moves influencing the market upward during low volume lulls. The best example I can think of was just a couple of months ago, when the market was drifting lower and out of nowhere came a massive bid which drove the S&P up 1%. I remember the quote at the time (the article is in ZH's archive) of traders saying there was "no way they would short into a bid that strong". That move was initiated clearly by ONE player. Yes, the crowd follows, like RobotTrader's wildebeest, but the initiative belongs with the big boys. So yes, there is a group who can do this. And if they are the Fed? Or even if supported by the Fed? There's no reason to doubt their ability.
You're right, it can't run forever. And when it comes down, it very likely will be spectacular. But can they keep this going for two more hours or ten more years? I have no idea. If I knew the timing of that bet, I would be a happy guy and set for life. --Boris
They aren't doing it by buying stocks. they are doing it by buying index futures and individual stock futures, where applicable.
Using futures, a single lot can control 100X the principal, so they can easily ramp up the S & P 500 Index with just a few million dollars in well-placed and well-timed futures purchases. As long as the algo-boys and HFT programs reaise that they can move with relative impunity, they trade amongst themselves while real investors sit and watch in stunned disbelief.
Soon, though, they will be unable to push the envelope very far. (It seems actually that that day may be today...) Be patient, everyone. it is coming.
The alcoholism analogy below has substantial significance, when considering that the Booze industry is probably the only reliable leading indicator left.
Look at it this way - economy goes up, beer sales go up. Economy goes down, beer sales go up.
What's changing is the proportionality of the increases - you are seeing more independent microbrews sprouting up and consequently stronger reactionary steps by the big carriers.
Budweiser sells no less than 20 beers that DO NOT bare it's brand name including: Stella Artois, Grolsch, Rolling rock, various Faux-micros with flavors like pumpkin-twat, etc.
You'll see this market crash when it is politically or financially beneficial for those large players who control a large part of the pot to do so.
Up or down makes no difference - I completely disagree with most that the long-term play is dead - in fact, in a rigged game like this - it is all that is left. The problem is, as in beer - branding, marketing, and strong-arm tactics conceal which players are long-term potential winners and which ones are simply the big guys masquerading in sheep's clothing.
This is why Jesse Livermore kept himself locked in a room.
A) The US government has a vested interest in watching the stock market go higher. When you sell this market you are taking on Uncle himself, and someday a Predator drone will fly over your house (New Short Selling rules)
B) This market, despite its upward trend, is picking up dimes in front of a bulldozer. Two or three weeks of gains can be wiped out in a couple days. All they can do with their stock market is match inflation, which is the rate at which they expand the money supply, they cannot make the economy work.
C) Corporations borrowing money (at zero APR) to buy their own stock creates a connundrum. At some point they own all their own stock, and, the price is ridiculously high, and no one else wants it. Now they can go private at that point, but either way it represents a limiting of future growth, as does increasing dividend payments. Just look at the history of Microsoft, lots of cash which is a good thing, special dividends, that's good too, and nothing new to promote. Gates said it himself, the company won't exist in ten years.
D) The financial crisis effectively killed off credit to small businesses, they are complaining now, they should have been complaining ten years ago, but no one listened, especially the Democrats, who are in power now. Who benefits from denying small businesses money? Why corporate America, all those big ticker symbols which go up each day, and always exceed earnings expectations, one way or the other.
E) The fundamental problems is this economy are not being remedied. So just play the end of the days game, the bigger they are, the harder they fall
Falling markets = deflation = liquidations, bankruptcies, foreclosures = lawsuits and congressional hearings = exposure of US government/bank crime syndicate = riots
do not hold your breath for Pretchter's asset collapse.
for the guys at the helm in DC and NYC, its Hyper-inflation or life in prison.
Rob Kirby - We no longer have markets, just manipulation
Are the other reasons the market went up recently because of new short rules in the US and also in Germany too?
Once these have closed out, then the interfering governments will have set up a nice plummet yet again because of their stupid interference in the market and shorting
When Dave starts to go bullish, have they roped in the last bear to start the fall?
The legendary market analyst, Charles Biderman, believes that the market is going up because the government is providing artificial, illegal support. I agree 100%. When the empty-suit mutual fund managers and the neanderthal momentum traders like Barry Ritholz figure this out, the market's going to crash.
Ritholtz published my research on Shiller's CAPE data -
http://www.ritholtz.com/blog/2010/02/removing-the-cape-from-cyclically-adjusted-price-to-earnings-ratio-cape/
You see, The Beard can pull two levers independently, and simultanously, because he has a helper.
Here is a little known photo of the PPT's HAL9000 (That is Turbo Tax Tim clearly on the left):
http://www.radiomuseum.org/forumdata/users/6435/Typhoon/typh_control(1).jpg
Doelarr is in spin cycle at DXY80, Now its bouncing up from $1125 did China buy yet or what. The world likes it; who else is jumping in the gold pool? cuz if China isn't gonna buy it Canada will, Brazil would love it back. Japan has not had gold since Yamashimawamama's gold was takin by Prescott Sheldon Bush.....erhem....and others.
"According to John Crudel..."
Rosie has been wrong so much recently, it's no surprise he can't even spell Mr. CRUDELE's name correctly.
Row, row, row your boat,
Gently down the stream.
Merrily, merrily, merrily, merrily,
Life is but a dream!
It's hft and algo's.
everything else that trades actually follows indicators, except the s&P. give me a break. I sold some commodities yesterday, I sold euro's yesterday. it's because the us market has becomne a stupid game
shorts are covering usd--relevering with yen
Man, the next bottom of the USD/JPY pair is going to set up the trade of a lifetime. When it retraces the bottom, look for the USD to rocket to 2.000 against the yen.
Make you rich.
It was the plan from day one. Sacrifice the dollar at the alter of Standard & Poor, then systematically eradicate every feasible currency alternative in a wave of mass fiscal genocide - effectively lowering the bar for everyone.
If they won't play ball, you can always assassinate one of the smaller nations in the euro zone and force the hand of the EU under the exact same threat that faced US markets in October 2008. Fuck with your currency for our benefit or we'll collapse your economy.
The end result? You have no where else to go. Stocks continue to rise as dollar strengthens for lack of feasible short-term alternatives and zero predictability in the mid to long terms.
Seen this play a thousand times.
Let's Fund our deficit with new debt offerings then inflate those liabilities away, most likely while pursuing some politically beneficial monetary action like "lowering" taxes or massive federal spending under the auspices of saving a few nickels down the road (healthcare).
Let's collapse commodity prices to create a buying opportunity while those nations (our "enemies") dependent on the oil trade squirm, then slowly reflate the market on rumor without any indication of increasing demand - squeezing them from both ends. You control the market, you control the behavior of transactions.
This one goes back to the imperialist mercantile trade of the late 1300's. - proving once again that you can't teach a old dog new tricks, but he can always do old tricks in new ways.
I suppose I shouldn't be so cynical. After all, I am white and live in America.
start of mercantilism was ca.15th cent
Ok you got me interested.
Any good websites to learn more about this "imperialist mercantile trade of the late 1300's?"
this is exactly the plan they did in december. stay steady until the dollr falls then jump up on dollar weakness
I'm certainly not a bull, in fact, I'm profoundly bearish and believe a TOTAL SYSTEM COLLAPSE is guaranteed to come, as it should.
That being said, I think anyone looking or expecting an imminent market decline anytime soon will be sadly mistaken. I believe it's quite likely this scam market continues to march higher for quite some time - getting it's fuel from people who are fundamentally correct (shorts / put buyers).
I'd love to be proven wrong in my thinking and would like nothing more than to see some real and lasting punishment for the financial follies of the last 10 to 20 years. That would be SIGNIFICANLY LOWER (preferrably to ZERO) stock prices. I just know from past experience, wishing things doesn't make them so.......
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