Investor Sentiment

By that, I mean the normal supply and demand forces no longer make sense.

After looking over all the figures, it seems as if something broke in the U.S. Silver Market this year. By that, we mean the normal supply and demand forces no longer make sense.

After yesterday's rollercoaster session in both the S&P and in oil, where initially stocks soared alongside oil, only to promptly tumble as stops were taken out and as the refiners' inventory strategy was exposed after the DOE's latest weekly numbers were released, it has been a quieter session so far, though maybe not for China where stocks jumped at the open only to fizzle and close at the lows in what appears to be ever less intervention by the market manipulating "National Team."

Gold sentiment may finally be getting bearish enough to support a durable bottom.

There was something for everyone in last night's much anticipated Chinese PMI data, with the official number sliding to the lowest in over 3 years, suggesting the PBOC will need to do more stimulus and is thus bullish, while the unoffocial Caixin print rising to the highest since June, suggesting whatever the PBOC is doing is working, and is also bullish. Not unexpectedly, global stocks decided to take the bullish way out, and have risen across the globe led by Asia, where stocks rose as much as 1.8%, Europe also green and US equity futures up 10 points as of this writing.

With at least 83 percent of these companies' operating cash being spent on debt repayments - the highest on record - the renewed collapse in crude oil prices of the last month has renewed focus on the tidal wave of defaults that the credit market is increasingly pricing in (and stocks not).

Will they, won't they, should they or shouldn't they? Those are the questions being hotly contested by the mainstream media on a daily basis. Of course, the reality is the Federal Reserve faces the huge obstacle of weak global growth and deflationary pressures which could very well keep them on hold well into 2016. The potential loss of credibility in the Fed by the markets could be the bigger issue to be concerned with. For now, we wait.

"After many years of ultra-accommodative polices, it is clear that ongoing interventions have failed to boost actual economic growth and only exacerbated the destruction of the middle class. It is clear that employment growth has only been a function of population growth, as witnessed by the ongoing decline in the labor-force participation rates and the surging levels of individuals that have fallen out of the work-force. While we will continue to operate to foster maximum employment and price stability, the reality is that the economy overall remains far to weak to sustain higher interest rates or any tightening of monetary policy."  

While there are certainly reasons to be "hopeful" that stocks will continue to rise into the future, "hope" has rarely been a fruitful investment strategy longer term. Therefore, let's analyze each of the optimist's arguments from both perspectives to eliminate "confirmation bias." 

If this is indeed a rerun of the post-LTCM/pre first tech bubble days, then oil is about to soar by 150%

After earlier in the year exposing "the greatest shorting opportunity since 2007-2009" and trading it profitably through September with "front row seats to an imminent market shock," Billionaire Crispin Odey's flagshipfund has suffered recently. As Bloomberg reports, the fund plunged 16.8% in the first 16 days of October, after the fund profited in August and September from Odey’s negative view of the Chinese economy. Odey believes that the only way economies will be able to work their way through the next downturn is by writing off capacity. Therefore, with credit tightening as well, according to Odey, it’s a good time to be short...

"It could simply be 1998/99 all over again. After all, a “speculative blow-off” in asset prices is one logical conclusion to a world dominated by central bank liquidity, technological disruption & wealth inequality. What worked back then? What rose from the rubble of 1998? How would one position for one final melt-up on Wall Street..."

Following the latest hedge fund underperformance, it is no longer possible to ignore the obvious:in the year in which central banks will unleash the greatest amount of liquidity in the "markets" in history, and where we have seen at least 77 easing steps taken by global central banks, hedge funds are poised to record their worst performance since 2011, according to JPM.

"Three topics dominated our client discussions this week: (1) Hedge fund performance in the wake of the collapse in Valeant Pharmaceuticals (VRX) during the past five days; (2) cash return to shareholders, especially buyback activity; and (3) 3Q results."

Correction continues, but it is only a correction.