New York Stock Exchange
The % of NYSE stocks above their 200-day moving averages has a strong bearish divergence similar to previous plunge-preceding divergences. As BofAML notes, this points to diminishing momentum for market breadth and preceded pullbacks in the range of 15%-20% in 2010 and 2011; increasing the risk for a US equity market pullback in 2014.
Although the U.S. stock market continues to hit new nominal highs on a nearly daily basis, the U.S. economy bumps along at a lackluster pace. This disconnect has been achieved by a massive Fed experiment in monetary stimulation. Through the combination of seemingly endless maintenance of zero interest rates and the injection of some $1trillion a year of synthetic money into fixed-income markets, the Fed is hoping that the boom it is creating on Wall Street will lead to a boom on Main Street. In reality, this a very dangerous economic gamble of enormously high stakes. As we have seen in the recent past, financial bubbles can leave catastrophe in their wake.
They say those who forget the lessons of history are doomed to repeat them. We’ve seen that maxim made true time and again. The cycle swings fear back to greed. The overcautious become the overzealous. And at the top, the story is always the same: Too much credit, too much speculation, the suspension of disbelief, and the spread of the idea that this time is different. The weaknesses of the human heart and mind means the swings will always exist. Our rudimentary understanding of the forces of economics, which in turn, reflect ultimately reflect the fallacies of people making investing, purchasing, and saving decisions, means policymakers will never defeat the vagaries of the business cycle. So no, this time isn’t different. The specifics may have changed, but the themes remain the same.
As we noted here, October 2013 NYSE margin debt stood at a new record high of $412.5b (up from $401.2b in September) and exceeded the prior high from April of $384.4b and net investor worth dropped to a record low. However, as BofAML notes, NYSE margin debt and the S&P 500 have +0.76 correlation using a 48-month (4-year) correlation as of October 2013. This is the highest correlation in our data history back to 1964. A positive correlation means that margin debt and the S&P 500 tend to move together; which as they helpfully note means - as long as the market rises, margin debt is not a risk. Better keep BTFATHing, it's the patriotic thing to do.
Unfortunately for Bill Ackman, another leg of the "short Herbalife to the grave" thesis just broke when a Belgian Appeal Court hearing overturned its previous findings:
- *HERBALIFE 'WELCOMES' JUDGEMENT BY BELGIAN APPEAL COURT
- *HLF CITES CLAIMS THAT HLF WAS OPERATING A PYRAMID SCHEME
- *HERBALIFE SAYS COURT STATES ITS SALES MODEL IN FULL COMPLIANCE
The stock is up 5% on the news, breaking to a new record high above $75.
With the "inmates in charge of the asylum" during this holiday shortened trading week it seemed to be an apropriate opportunity to share a virtual cornucopia of topics to consider while enjoying the delicious delicacies, and subsequent tryptophan induced comas, of a traditional Thanksgiving.
- CME/CBOT/NYMEX Closed
- CME Globex -
- Equity products halted (halted between 1030CST/1630GMT and 1700CST/2300GMT);
- Interest Rate Products halted (halted between 1200CST/1800GMT and 1700CST/2300GMT);
- FX halted (halted between 1200CST/1800GMT and 1700CST/2300GMT)
- NYMEX and Comex halted (halted between 1215CST/1815GMT and 1700CST/2300GMT)
- NYSE Closed
- NYSE LIFFE Regular Close
- Eurex Regular Close
The correlation between stock prices and margin debt continues to rise (to new records of exuberant "Fed's got our backs" hope) as NYSE member margin balances surge to new record highs. Relative to the NYSE Composite, this is the most "leveraged' investors have been since the absolute peak in Feb 2000. What is more worrisome, or perhaps not, is the ongoing collapse in investor net worth - defined as total free credit in margin accounts less total margin debt - which has hit what appears to be all-time lows (i.e. there's less left than ever before) which as we noted previously raised a "red flag" with Deutsche Bank. Relative to the 'economy' margin debt has only been higher at the very peak in 2000 and 2007 and was never sustained at this level for more than 2 months. Sounds like a perfect time to BTFATH...
Is it just coincidence that Twitter is being Baumgartnered and both the NYSE (stock) and BATS (options) markets have now broken!
This is just farcical now...
Even as the Dot-Com 2.0 exasperates to new highs, it seems Twitter - the darling of the no-profit-but-lots-of-hype recent IPOs - is losing its lustre. TWTR is down 4% today to new lows post-IPO. The catalyst for this latest slump appears to be a WSJ article about "fake accounts" - whocouldanode? Of course, it wouldn't be the new normal markets without an exchange 'breaking'... The NYSE and NYSE MKT cash equities markets is working to resolve an issue with customer connectivity.
- Wonder why: JPMorgan plans to keep pay roughly flat from last year (Reuters) - maybe this: Charles Schwab Warns "We Are In A Manipulated Market"
- Democrats overturn filibuster rule, increasing Obama’s power (FT)
- Day JFK Died We Traded Through Tears as NYSE Shut (BBG)
- When even dictators snub Obama - Afghanistan rejects U.S. call for quick security deal (Reuters)
- Obama Plunges in Investor Poll as Stocks Make New Highs (BBG)
- Iran, six powers struggle to overcome snags in nuclear talks (Reuters)
- Derision for China’s ‘rejuvenation index’ (FT)
- Bottom is in: Paulson Said to Inform Clients He Won’t Add More to Gold (BBG)
- German business sentiment rebounds strongly (WSJ)
- WTO on verge of global trade pact (FT)
Farewell Mareeaah. The Money Honey who epitomized CNBC in its high flying (pardon the pun) years when it was actually a source of useful information, has just marked the nadir of the TV station which in the past five years rebranded itself stock market propaganda central, and whose viewership plunged appropriately to a 20 year low as we recently reported. As Drudge reports, Bartiromo whose contact is up, is moving to Fox Business. From Drudge: "DRUDGE has learned that Maria Bartiromo is jumping to FOX BUSINESS NETWORK with an announcement expected sometime soon. Sources close to the situation say there have been ongoing conversations throughout the Fall. The new deal calls for Bartiromo to anchor a daily market hours program on FOX BUSINESS. Insiders say there will be a role on FOXNEWS as well."
- What can possibly go wrong: Tepco Successfully Removes First Nuclear Fuel Rods at Fukushima (BBG)
- Japan's Banks Find It Hard to Lend Easy Money (WSJ)
- U.S. Military Eyes Cut to Pay, Benefits (WSJ)
- Airbus to Boeing Cash In on Desert Outpost Made Field of Dreams (BBG); Dubai Air Show: Boeing leads order books race (BBG)
- Sony sells 1 million PlayStation 4 units in first 24 hours (Reuters)
- Russian Tycoon Prokhorov to Buy Kerimov's Uralkali Stake (WSJ)
- Google Opening Showrooms to Show Off Gadgets for Holidays (BBG)
- Need. Moar. Prop. Trading: Federal Reserve considering a delay to Volcker rule (FT)
- Raghuram Rajan plans ‘dramatic remaking’ of India’s banking system (FT)
- SAC Capital's Steinberg faces insider trading trial (Reuters)
Just a lucky coincidence?
The overnight global scramble to buy stocks, any stocks, anywhere, continued, with the Nikkei soaring higher by 2% as the USDJPY rose firmly over 100, to levels not seen since May as the previously reported speculation that more QE from the BOJ is just around the corner takes a firm hold. Sentiment that the liquidity bonanza would accelerate around the world (with possibly more QE from the ECB) was undented by news of a surge in Chinese short-term money market rates or the Moody's one-notch downgrade of four TBTF banks on Federal support review. The release of more market-friendly promises from China only added fuel to the fire and as a result S&P futures are now just shy of 1800, a level which will almost certainly be taken out today as the multiple expansion ramp continues unabated. At this point absolutely nobody is even remotely considering standing in front of the centrally-planned liquidity juggernaut that has made "market" down days a thing of the past.