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The Storm That Wasn't?
Over the weekend, Michael Santoli of Barron's wrote an article, The Storm that Wasn't:
Last
Monday was the slowest trading session of the year, as measured by
turnover in the stocks that make up the S&P 500, which in turn
captures most of the give-and-take involving the stocks that matter to
most investors.
The good folks at Bespoke Investment Group, at Barron's request,
point out that Columbus Day is not, routinely, the sleepiest day of
the year's first 10 months. By their lights, Columbus Day has, since
1993, often been an uneventful day, but never has it been the quietest
day of the year to this point on the calendar.
At the risk of
extrapolating too terribly much from this modest sampling of market
history, the most logical explanation for the extreme "uneventfulness"
of the equity market last Monday is that the bond market was closed, as
it typically is on official holidays.
Stocks
are now a neglected asset class, slave to the bond and currency
markets. The fact that the Treasury market wasn't open for business
Monday—and therefore that the largest pool of investment assets on the
planet wasn't out there twitching to every hint and whisper of future
central-bank action–deprived equity traders of their principal cue.
This
might have marked the peak of stocks' slavish relationship with the
macro forces that manifest themselves first through currency and bond
markets. For months, the correlation among stocks has been so high as
to mock active fund managers who attempt to pick winners and shun
losers, but this all-or-nothing dynamic has faded as the market rally
since early September has matured.
Not
unrelated is the bounce in 10-year Treasury yields last week, from
2.38% all the way to 2.57%. The bond market is, hesitantly,
transmitting the notion that even if the Fed does embark on a new
asset-purchase campaign, perhaps the markets have already discounted it.
In
the short term, the general neglect of equities is a headwind for the
market, yet over a longer span it's a benefit. As long as stocks
continue to act as nothing but the tail being wagged by the dog of the
macro data driving the dollar and bonds, the less likely equities will
become captive to any public mania and get overvalued and therefore
vulnerable to another bruising downturn.
The
folks who remain attentive to what's happening in the stock market are
perhaps getting a bit too comfortable with the idea that the market
can continue melting up. The weekly tally of those members of the
American Association of Individual Investors who respond to the group's
poll has remained above the historical average level of bullishness for
six straight weeks.
That doesn't imply the best buying
opportunity is at hand. And yet, the public has been a net seller of
stocks for five straight months, according to the Investment Company
Institute. The future returns following prior such streaks of public
liquidation of equity funds have been far better than average, as BNY
Convergex recently noted.
This is
pretty much the salient market theme right now– investors are a bit
overconfident and complacent in the very short term and yet in a
broader sense are more cautious and skeptical than the economic data and
market action warrant.
Here we are, halfway through October,
and three-quarters of the way through the notoriously treacherous
September-October period, and the much-hyped volatility storm has yet
to arrive. Now that we live in a market where it's quite easy to bet on
future volatility through futures on the CBOE Volatility Index (VIX),
traders have bid up expectations of impending jumpiness to an alarming
degree.Often this has proved a harbinger of tumult to come, but
given how widely anticipated the unsettled market weather is, perhaps
we're inoculated from its nastiest implications.
On
some level the market is simply reflecting the less-reported signs of
healing in the economy. Retail sales just re-attained the level right
before Lehman Brothers' failure. Nominal gross domestic product is at a
record high. Mergers and acquisitions look poised to accelerate. The
market has held up despite the stark underperformance of financial
stocks, just as it did in 2004 in the face of stagnant semiconductor
stocks (then considered a bellwether).
It's
not a novel thought to offer that stocks seem ripe to pull back or at
least flatten out for a bit. Whatever the salutary effects of a
Republican rout on Nov. 2, they seem already more than discounted. Yet
there's enough skepticism there, that any stiff pullback would likely
be a reason to buy, and not to panic.
Mr. Santoli was interviewed on Yahoo Tech Ticker (see video below) stating that bulls were "caught offside" by China Rate Hike, BofA Woes:
Stocks
slumped Tuesday following a surprise rate hike by China's central bank
and a "sell-the-news" reaction to earnings from tech giants IBM and
Apple. The selloff picked up steam mid-afternoon on reports Pimco,
Blackrock and the NY Fed want Bank of America to repurchase $47 billion of mortgage-backed securities they claim were improperly serviced by its Countrywide unit.
"This is the tip of the iceberg," writes market-timer Thomas Kee, president and CEO of Stock Traders Daily. "This is the beginning of [sic] PUT BACKS. It will be a long legal haul, and another added weight on banks."
Even
excluding the latest worry about financials, several factors conspired
to drag stocks down Tuesday, Barron's columnist Mike Santoli tells Dan
Gross and I in the accompanying clip.
After
a 12% rally in the past six weeks, the market was technically
overbought and the short dollar/long financial assets trade had become
"very crowded," Santoli says. "A lot of people were caught offside" by
China's rate hike and irrationally exuberant about prospects for more
quantitative easing by the Fed. (Indeed, commodities and other "risk
assets" joined stocks in retreat Tuesday as the dollar posted its
biggest one-day rally since August.)
A Headwind for the Market
These
"hair-trigger moves" are contributing to investors' mistrust of the
market, Santoli says, as evinced by the steady outflows from equity
mutual funds - despite the market's strength prior to Tuesday's tumble.
"There's
definitely been a context shift" since the ‘Flash Crash' in May, he
says. "It's not as if people are panicking out of stocks. They're
steadily selling [and] diversifying out of stocks. It's going to be a
headwind for the market for a while."Despite their short-term
bullishness, professional investors also have an eye on the exits,
Santoli says, noting a "steady bid" for futures predicting a rise in
volatility over the next six months. Investors have a "muscle memory" of
2008 and think "something could upend the market anytime." (Something like, say, an unexpected rate hike by China.)
But
if sentiment is really a contrarian indicator, this underlying
skepticism "tells me this is not a market that's getting overheated or a
market that's going to a valuation extreme," Santoli says, building on
the theme from his most- recent column: The Storm that Wasn't.
My take on today's action? It's just another day in the wolf market
where the wolves were busy stealing shares from retail suckers and
institutions that dumped because they panicked/ cut risk. Nothing has
changed. The mortgage mess isn't going to kill banks, and smart money is
still betting on the Bernanke put.
Importantly,
top hedge funds are using these pullbacks to build on their positions,
especially in energy and commodities. And what about pension funds?
Some, like the Caisse, are prepping for the next big move,
and mark my words, the next leg up is going to be huge. A lot of asset
managers are underperforming their indexes, so they'll use any pullback
to juice their portfolio with high beta stocks.
Speaking of high beta stocks, my beloved Chinese solar stocks got killed today, led by my number one pick, LDK Solar (LDK), down 14% on very high volume.
In fact, volume was extremely high in the solar sector today, telling
me that the wolves were up to their crooked ways, naked short selling
and buying more shares on the cheap.
Watch this and other
sectors very closely and use these pullbacks to accumulate more shares.
As more Fed officials come out to state that quantitative easing has to be big,
all the makings for a massive bubble are on their way. My big bet
remains with alternative energy but others prefer gold, commodities and
energy. It doesn't really matter, because all I know is that once the
bubble sectors take off, they're not coming back to these levels. That
much I can guarantee you.
»
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You're probably right this time. After all the rate hike in China serves the purpose of stopping the deflationary pushout to the states. The market is upset that once the Fed gets some cooperation from China, like rising export prices, (and fewer rare earth minerals) they can bake a little inflation in the cake and take back the punchbowl (QEII). China has an inventory overhang in solar, but with Natgas at multiyear lows lets guess that Natgas cars will be the next big thing. Forget those expensive battery cars.
QE2 will be gianormous. I might take them 9 months to roll it out, but it will probably be over $2T.
They are facing the monster of all deflationary blackholes. America has no productive sectors, but has mammoth debts. Any productive sectors left after everything was off-shored are teetering at the rim of the abyss. The few Americans that still count as consumers are spending the money that was meant for mortgages, which they are repudiating.
$2T won't be enough. There is not enough. They cannot print enough to fill the current hole that is sucking up cash. Wages are hammered, real unemployment is high.
There is not enough money. But they'll try. They'll manage for a while, and then the wheels come off anyway. Nobody will be surprised by then, so we have that going for us.
mr Santoli is typical idiot who knows none othewise
he 'd run money instead blubbering on TV ( as you do too)
Leo ,, pal your're typical corporate whore.. you think you're smart
trying to influence (WINK WINK) this and that each and every day..
well pal believe me 'chickens come home to roost' sooner or later..
# as far as GDP /sales/recovery
anyone who believe stats from BEA NBER BLS is AND IDIOT w/ capital I
US gov in 2010 fin year run 1.7 trln $ deficit, corp taxes still 50% below peak,
income taxes 25% below peak..
recovery my ass
alx
alexwest,
Listen "pal", go back and read my Outlook 2009: Post Deleveraging Blues. After you read that, including my stock recommendations, then come back here to tell me I don't know anything about markets. When it comes to stocks, I accept that the game is rigged and manipulated. I don't fight the Fed and I watch what the top hedgies are buying, not what they're saying.
I junked you Leo just on general principles but mostly for the "I have the balls" comment. You may know a lot about markets, but I'll bet you'd last less than ten minutes in most ghettos.
Spouting off about money being where your mouth is qualifies you for the Loser of the Year Award.
Hell, I don't even know you, but I piss on your wing tips.
You are a douche bag to be trading in this market. Buy gold, moron. And STFU. Your analysis is crap.
http://www.youtube.com/watch?v=ZKPG1nG-OTg&feature=related
Hey, Leo. I very much admire your tenacity as i've not seen anyone take the abuse that you do around here and keep coming back for more. A man's gotta have quite an ego to believe in himself in the face of such brutal remarks. I like that about you.
Anyway, did you find it interesting today that, even with the strong $USD rally (crowded trade), the grains still held their ground?
http://finviz.com/futures_charts.ashx?t=GRAINS&p=d1
Seasonal? Perhaps.
...or, too many global fiats chasing too few goods? Maybe the "inflation trade" is not so crowded after all. ???
What are your thoughts?
Simple. Grains remain high because the crops are shit in Western Canada and Russia ain't exporting.
with the major seasonal reports out, and the extra fiats popping up everywhere, is this a good risk/reward scenario for those who wish to keep a reasonable stop limit?
I'm looking for reasons to NOT add to these trades, but barring some MASSIVE rally in the $USD, I'm not seeing why the trend upward in grains will not continue.
I actually expect a rally in the $USD at some point (when problems with the Euro take center stage), but still expect the grains to rally with it because of expanding M1s seeking value in those 'items' needed most (food!).
chopper,
In my Bernanke put comment, I mentioned that the short USD trade was getting overcrowded. Europe will get massacred if the euro goes back to 150. They are next in the QE game. As far as the inflation trade, it's what most pensions are betting on, investing billions in inflation-sensitive asset classes like infrastructure, real estate, commodities and real return bonds.
Thank you. It sound as though you believe the (ever so delicate) "race to the bottom" trend remains intact, if I understand you correctly.
cheers, buddy.
Are you saying that both
1. Economy is quietly recovering, and
2. QE2 will be huge?
Such self-contradiction is a tell tale sign of talking one's own book and hoping to bait some suckers. And, yeah, desperation, too.
I think that is Aurora Illinois about to get it's ass washed.
Thats a picture of a Supercell Leo. It can look that way for a long time.... and then all hell breaks loose. Those who stand outside of it thinking nothing has happened yet ... Well.
Leo will still be playing tout for solars as he's spinning around the outside edge of the now-fully-formed shit-tornado.
"Importantly, top hedge funds are using these pullbacks to build on their positions, especially in energy and commodities."
Show me the trades and the average position before the trade.
Every pullback should be bought...until it is not.
Double up to make up!
You got a TPS report on that Lundberg? Do I have to come in on Saturday when the market is closed to bang it out for you?
i would presume that this story better captures the driving force behind the viscissitudes of the solar sector:
http://af.reuters.com/article/metalsNews/idAFTOE69I0AB20101020
Can't really blame the bulls here...trillions of available taxpayer dollars are juicing the market so might as well join the fun.
Not me, thanks. Long the December DX from 7723 and that is about it for now.
I would LOVE to live in that alternative reality known as LeoLand!!! Things just magically work out. Sounds like a nice place festooned with ergonomic padded bear traps with a razor blade safety catch. Little slice of heaven doncha' know. Those solars will light up the night sky and the will help you find your balls after that little treasure is seperated from your body.
I bow to your optomism, wish I had that capacity to ignore reality in the face of overwhelming fact. Yes Bernake is out there, but do you really think he is making this a piece of heaven? NOPE! He is operating from stupid pride and lack of clear thinking. That is what happens to these idiots that are our current "masters of the universe".
Soon these pricks are going to have their heads seperated from their body, much the same fate coincidentally as your testicles. If you follow the path you will reap their reward.
They sell that reality cheap in Canada (along with their housing bubble).
Leo is an natural optimist. I am a natural pessimist and outsider and that is what attracted me to this site. Leo sticks out like a sore thumb here and collects more shit because of that.
At least he's not pissing into the wind about how manipulated the Sept-Oct rally was!
Agree with Leo. AUD and CAD will be back to .9850 in the next 72 hours. Silver will be back between 23.75 and 24.00, and Gold will hang around 1350. Typical sharp, short, selloff.
GG
More than likely GG.
I saw no real trend for such a move in AUD, other than the washout in gold.
COMEX gold spreads are well in contango, no imminent collapse of the global monetary system or anything. Plenty of time for the burden of bad debt to get much worse.
Probably next week or week after, not 72 hours.
How about after 24 hours? :-)
GG
I'll wait for mean reversion, friend:
http://tal.marketgauge.com/dvmgpro/charts/CPERATI.HTM
By 'Take-off' you mean like these guys, right?
http://www.youtube.com/watch?v=X-ZvAVcBIrQ
O geez, Off topic; I know you hoser.
Regards
Congratulations on having the money to put your balls where your mouth is - most people require years of intensive yoga training to achieve such a feat. Clearly you are in an "enviable position", my dear scrotum-snuggling friend.
You give new meaning to the investment street term "ten bagger", sir!
You and a bunch of others are in big because you think Bernanke has created a put on the market. QE is a piece of crap Leo. Look at what is going on around you. You think multiples should be expanding with all this noise? Or is it just the "good" global economy you are counting on?
Bernanke wrote you a put. But you better read the fine print. That is an out of the money put your holding. It is only good if we go south by 20%. Nobody writes at the money puts for no premium, not even your pal Bernanke.
The Bernanke put will only come into play after the Fed has shown the consequences of tightened liquidity. The way these markets are moving is all down to whether liquidity is tightening or expanding. Yesterday China raised rates, ECB is not flooding the system with cash and the mortgage put backs are all going to suck cash out of the system.
We've got great uncertainty about the long term survival of the big banks, which creates a huge problem for launching QE2 quickly, plus the looming signs of a currency war and the G20 on the horizon. Earnings week is just noise and there are going to be lots of players selling into the "better than expected" numbers.
Short term (i.e. next few weeks at the least) if you are long, you are wrong.
Bruce makes very good remarks about the Bernanke put being an OOM put. However, we should consider that we have left the territory of typical, FeD, OOM put-land. We are in brand new countryside here. For example, I see a new agreement that current asset prices have already discounted the coming QE. Or, that the coming QE will be less than expectations. How many have considered QE will be bigger than expectations? This is more than just the old Fed put. We have Fed Presidents using the language of battle. They are basically telling us they will go scorched earth, here. (see the actual texts coming out of the weekend meeting in Boston)
GG
Bruce, I don't think that put will even help with the market down 20%. They may pull out the big guns but with Fisher speaking some sense (damn I wish he was a voting member) it seems to me that they know that liquidity is really not the issue. The issues are jobs and growth and in a long term cyclical downturn, it just has to work itself out by wringing the debt out of the system.
all this talk of jobs and growth is a little misleading.. you can grow all the shitty jobs you want and that isn't going to help anything. globalization is the new TBTF and its only endgame is serfdom via debt chains
the world will have to go full hippie (communes, leave the grid, etc) to break out of it
Seriously.... what the F is the incentive to launch QE again if equities are shooting the lights out? How do you "sell" that to taxpayers? If a Wall Street bonus is already at a record pre-QE, what is it going to look like post QE? And what the hell will the public reaction be? Feinberg will have some 'splainin to do to say the least.
And where is your growth story? Municipalities are shot. Pension plans are dramatically underfunded and states are going to spend more money on.... an inefficient energy source? Forget the dollar for a moment, think about what will happen to our debt... the ponzi will come to a grinding halt. The debt roll cannot be financed at higher rates... it is impossible. And forget your gaddamned second stimulus... you can throw that out the window.
speaking of which: HOW MUCH TRACTION DOES THIS PLAN TO CONFISCATE 401(k)s HAVE? Does anyone here know if we should be taking this seriously? Is it time to cash out and take a penalty?
http://www.prisonplanet.com/government-prepares-to-seize-private-pension...
ANY THOUGHTS ON THIS FROM THE ZeroHedge CREW WOULD BE GREATLY APPRECIATED.
Thought about it when Barry got in.
My mind always turned to this...if I were govmint, starved for cash, eyeballing this mountain of potential tax revenue from penalties of early withdrawl (IRA's, 401k's etc.) what is a way I can get them to cash out and trigger this event.
If they pulled an Argentina I don't believe they have enough security in place...LOL.
+1
why confiscate it? they use it to churn the market up and sell into it before they let the bottom out of it all.. rinse repeat.
why would they take the catalyst of the sucker bet out and be left with just a den of snakes?
I agree. Today was nothing to panic about. Oil and their related companies are very cheap. High paying dividends are to be had with these companies. Gold may have more room to correct but miner stocks will be a good bargain very soon (they already are in a sense as they have lagged behind the gold price movements).
Keep buying shares my friend...
Already did my friend, in the solar sector, at the lows, and accumulating more on every major dip.
Carefool, those sound like famous last words ;-) Having said that, Solar is not a bad place to be.
Maybe, but at least I got the balls to put my money where my mouth is! :)
Leo, I agree with doing that, but are you f*cking high?
Much like Ray Finkle's dad said that his son "Ray ain't coming home" with confidence in Ace Ventura, the economy ain't recovering.
Current dividend yield, 2%. Normal market bottoms, 6%. What great deals.
Cookies!
Great Work !!!