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Weekend Reading: Just A Correction, Or Something Else
Submitted by Lance Roberts via STA Wealth Management,
Earlier this week I posted two pieces of analysis with respect to the recent dive in the markets. The first discussed the possibility that this is just a correction within an ongoing bull market. The second delved into the possibility that a new cyclical bear market has begun. Only time will tell which is truly the case.
However, in ALL cases, the initial decline led to a subsequent bounce and ultimately retested previous lows. As shown in the chart below, this was the case in 2010 and 2011 which were ultimately followed by Federal Reserve interventions that helped the bull market regain its footing.
The question is whether, with economic growth rates slowing and deflationary pressures building, will the Fed again intervene by postponing rate hikes and injecting liquidity? Or, is this recent correction just the beginning of something larger? Only time will tell for certain. However, there is mounting evidence that we are indeed closer to the end of this bull market cycle than the beginning.
This weekend's reading list is a smattering of views from bulls, to bears and everything in between as to the recent correction. Is it just a correction to be followed by a resumption of the bull market? Or something else?
THE LIST
1) Panic Attack Or Start Of A Bear Market by Ed Yardeni via Dr. Ed's Blog
There have been lots of panic attacks since the start of the bull market in early 2009. The first four of them occurred from the second through the fourth years of the current bull market, and they were full-fledged corrections. They were all triggered by worries that a recession was imminent, with anxiety focused on three major and varying concerns: a double-dip in the US, a disintegration of the Eurozone, and a hard landing in China--all having the potential to cause a global recession either individually or in combination. When those fears dissipated, relief rallies ensued."
Read Also: Was Monday's Plunge Capitulation, Nah! by Simon Constable via Forbes
2) Dog Days Of Summer Not Over Yet by Jeff Hirsch via Almanac Trade Tumblr
"The Dog Days are not over for the market. This hazy, hot and sultry time during July and August were named the Dog Days of summer in antiquity by stargazers in the Mediterranean as the time period before and after the conjunction of Sirius, the Dog Star of the constellation Canis Major (Big Dog) and the sun. Back in the day the Dog Days were often plagued with, fever, disease and discomfort.
Selling continues to plague the stock market and we expect selling will continue through September, the other worst month of the year along with its neighbor August. September is the worst month of the longer term since 1950. Around this time last year I was on CNBC and the other commentator in the segment, Dan Greenhaus, Chief Global Strategist, BTIG (Great guy and analyst whom we respect and does great work), keenly pointed out the S&P 500 had been up in 8 of the previous 10 years from 2004 to 2013. So maybe September was not bad for the market anymore."
Read Also: 10 Things To Consider About Recent Market Panic by John Ogg via 24/7 Wall Street
3) What Happens Next Is Important by Adam Grimes via AdamHGrimes.com
"In October 2014, the selloff in stocks was strong enough (i.e., generated enough downside momentum) that we might reasonably have looked for another leg down. If that scenario was in play, what we "should have" seen was a fairly slow bounce, setting up some kind of flag/pullback, that would pretty quickly break to new lows. If that had happened, there was a possibility that we'd see continued legs of selling and the eventual breakdown of trends on higher timeframes. This is a good roadmap for how lower timeframe trends can have an impact on higher timeframes.
Instead, what happened? The market turned around, rocketed higher, and we knew, literally within the space a few days, that this wasn't an environment in which we were likely to find good shorts. Instead of the slow bounce, we got a hard bounce and the market quickly went to new highs. Following the decline, that type of bounce was unusual, but it was a clear message from the market."
Read Also: Some Good Things About Crashes by Matt Levine via Bloomberg
4) 99.7% Chance We're In A Bear Market by Myles Udland via Business Insider
"In his latest note to clients, Edwards warns that the recent snapback rallies we've seen in the stock market are merely headfakes and that stocks are probably headed lower.
In his note, Edwards references a model developed by his colleague Andrew Lapthorne, which incorporates macroeconomic and fundamental equity variables, and which currently indicates a 99.7% probability that we are in a bear market."
Also Read: Here's Why The Stock Market Correction Isn't Over Yet by Anora Mahmudova via MarketWatch
But Also Read: Most Top Flight Market Timers Are Bullish by Mark Hulbert via MarketWatch
5) When There Is No Place To Hide by Ben Carlson via A Wealth Of Common Sense
"Some people assume that because nearly all risk assets fall at the same time that markets are becoming more and more intertwined with one another. While I think that globalization and the free flow of information could potentially be speeding up market cycles, risk assets have been highly correlated during stock market corrections for some time now. This is nothing new. Here are the historical numbers that show how different stock markets and market caps have performed during past large losses in the S&P 500:"
Read Also: It's Different This Time...But Its Happened Before by Erik Swarts via Market Anthropology
Other Reading
Like 2008 Never Happened by Jeffrey Snider via Alhambra Partners
The Difference Between Traders And Investors by Cam Hui via Humble Student Of The Markets
Timing The Markets With Value And Trend by Meb Faber via Meb Faber Research
Interview With Jim Grant: Market A Hall Of Mirrors via ZeroHedge
Are Central Banks Corrupted? By Paul Craig Roberts via The Economic Populist
Fact vs Fiction: Low Oil Prices And Houston Housing by Aaron Layman via Arron Layman.com
A Laugh For A Tough Week
Everyone Who Started Watching MadMoney In 2005 Now Billionaires via The Onion
"You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes." - Morpheus, The Matrix
Have a great weekend.
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Some more computer glitches/crashes/oddities
I'd say the Cyber War goes ahead nicely.
http://www.bloomberg.com/news/articles/2015-08-28/hsbc-says-some-clients...
Sorry serfs, but you'll be the mass collateral casualties
Detroit is telling Teachers there is a glitch there too and that is why money is missing from paychecks.
Wonderful Republican Reorganization really fixed everything.
Bankers are behind all of this.
Let 'em eat cake or Twinkies.
Detroit's problems are all R?
You've earned your participation trophy tonight.
Sincerely,
J. Gruber
my guess is it trades sideways for the next ten years while bagholders are sought. it will bounce between fed support and giddy heights.
https://www.youtube.com/watch?v=5U319VzSqEU
Chilling theory. How can things not have gone on too long already? I guess my real nightmare is that the Fed and Goldman et al will find the perfect algorithmical trading pattern to funnel infinite amounts of ZIRP money into the bankers' pockets forever.
I'm with you on that. Seeing this crap go on and on for many more years as decency, infrastructure and everybody's nerves collapse could easily be worse than a sudden overnight collapse. However, in the slow grind the wealthy and powerful get a longer ride at the expense of everyone else. That's the route they will aim for.
I was thinking about this yesterday about the violent swings. Knowing that the big boys with millions of shares can't turn on a dime without collapsing the mkt, they have to ease out of positions over time. But without retail coming in to offload how will they exit these mammoth positions? Even the Fed has to unload on a sucker to book a profit.
I think your on to something. Years of sideways chop. with a few violent reversal days for good measure.,
The technical daytraders wet dream. everone else is fucked.
go back and look at where the 3%-4% up days in the market are found. They're all in bear situations.
Clubbing E trade baby's and selling the parts
The Rabbit Hole now comes with movie theaters, bowling alleys, and an Underground Parking Garage.
There are a LOT of people who will NEVER emerge from the Shadow Banking System, never see a blue sky, and never see green grass. Their whole life is cubicles, fluorescent lights and astroturf.
One day they will visit their doctor, get a serious diagnosis - and wake up to the fact that they threw their whole life away. Not to mention ... the lives of their kids as well.
$27 trillion has been spent on propping up the financial world and yet there is no inflation as it is digital money that never sees the light of day in the real world,one of its physical manifestations rigged markets and an ever increasing percentage of wealth in fewer hands has not been properly modelled.Traditional charts and financial modelling I learnt in the 1980's at university is now redundant,the secrets are in the hands of very few.
I have not seen any thesis or modelling from Harvard,Yale,Princeton,Stanford or anywhere else we can use we are in uncharted territory so to speak reduced to second guessing a central bank.Can we print to infinity possibly but there comes a time it becomes beyond Governments propensity to service debt,we are not there yet.What we have not been concentrating on is economic growth via consumer spending and maintaining real wages which is the real driver of the economy.Next month it will be revealed world trade is constipated to say the least,the real economy will eventually cancel out this false reality and when it does it wont be pretty.
Lets ask Greece. After the two week shit storm front page news. Now nada. amazing times
Phew! Sure glad Greece is all fixed. And China now, as well.
According to Guggenheim Partners:
http://www.guggenheimpartners.com/perspectives/media/rates-must-rise-to-...
Rates Must Rise to Avert Next Crisis
July 17, 2015
In 1898, Swedish economist Knut Wicksell argued that there existed a “natural” rate of interest that balanced the supply and demand of credit, assuring the appropriate allocation of saving and investment.
Should market interest rates remain below the natural rate for an extended period, investors will borrow excessively, allocating capital into less productive investments, and ultimately into purely speculative ones.
This is what the US economy faces today after years of meagre borrowing costs. Policymakers have created a Wicksellian dilemma where investment spurred by low interest rates is driving economic growth, but these inefficient investments support growth at the expense of lower productivity in the economy.
In recent years, this investment has flowed into housing, commercial real estate, and equities, driving asset prices higher, exactly the goal of the Federal Reserve in the wake of the financial crisis. But as the recovery in real estate and equities matures, a darker side of this imbalance between natural and market rates is beginning to emerge. Many investments today using artificially cheap capital are not increasing productivity – they are being made, because money is cheap and the profit motive is strong.
Consider the evidence. This year likely will witness record US stock buybacks; the second biggest year for mergers and acquisitions; the highest percentage of non-investment grade borrowers among new issuers of corporate debt; and a record for covenant-light loan issuance. In the midst of all this, stock prices are appreciating at the slowest pace since the financial crisis. Why? Because top-line growth is low and productive investments in core businesses are wanton.
Over time, the natural rate of interest should roughly equate to the average return on new capital investment. Distortions in economic activity begin to occur when the natural rate varies materially from the market rate.
The aftermath of the current period of corporate borrowing and splurging will be nasty. Consider that the majority of defaults of US high-yield bonds during 2008 and 2009 were loans originated between 2005 and 2007 – the final three years of the last credit cycle when M&A and leveraged buyouts peaked. Similar to today, credit remained cheap and the Fed was slow to raise interest rates.
We are not back in the frothy days of 2007, but we are leaving the realm of smart investment decisions and moving into the “silly season” when investors become convinced that recession is nowhere on the horizon and market downside is limited.
It is a world where asset prices continue to appreciate and confidence remains strong, while capital chases a shrinking pool of productive investment opportunities. Similar to the run-up to 2007, rising asset prices and malinvestments today may be sowing the seeds of the next financial crisis.
The harsh reality is extended periods of malinvestment result in declining productivity growth, lower potential output, and slower increases in living standards. A failure to normalize market interest rates soon will result in more capital plowed into investments that are less productive and more speculative.
As productivity declines, long-term growth will be stunted. Eventually, inflationary pressures will build, forcing market interest rates to rise. The longer market rates remain below the natural rate the greater the purge will be once higher rates induce a recession, causing a sharp rise in defaults among malinvestments made during the period of cheap credit.
Today looks a lot like 2004 or 2005, when investors were blissfully ignorant of what awaited. It is still early, but I get increasingly concerned the longer I see undisciplined investors clamoring for bonds with suspect credit worthiness at ludicrously low yields. Higher rates, higher prices, or both are on the horizon. Before long, some of those bonds may become toxic waste.
The good news is there remains time to take action. Policymakers can still make adjustments to avoid the worst phase of the credit cycle. To reduce the continued accommodation of these marginal investments, the US central bank should normalize rates soon. For investors, the time has come to consider opportunities to book gains in assets that in the reasonable light of day a prudent investor would never buy.
see also: Austrian Business Cycle Theory
Waaaayyyy of topic, but how broke is Illinois?
This broke: "Illinois lottery winners have to wait for payout due to budget impasse"
http://www.chicagotribune.com/news/local/breaking/ct-lottery-payments-de...
Zion is a scheme, not an ethnicity.
These people took the Blue Pill.
Wdf I od'ed on a bottle of red piulls now I need counselling to help me cope with this planned economy.
Don't care no more, the last RED pill put me way over the edge :-)
Bad Karma, linking to a Pay per view site...
What is the advantage of buying XIV (inverse VIX) over just shorting the VIX?
Never mind, it's just a blend of other indexes to reduce risk, as opposed to naked shorting VIX.
How Does XIV Work? - Six Figure Investing
To the Topic:
News: Father of News Reporter Killed this week live On-Air, states he is committing to some kind of Gun Reform like Gun Control to prevent people from Buying Guns.
Further... He states he is going to buy a gun since he knows this issue will bring out the crazies and he intends to defend himself.
Wow. Obviously he never studied Philosophy or Logic.
socialist mind set --ban something---
bant for thee - but not for me
is more like it
notice today's headlines about that event - saying they were shot in the head, while the video we saw day of event shows the woman having torso shots that did not affect her (3 shots) and she turned and ran away, CUT!
no more video - has anyone seen any photos of actual dead bodies? blood ?
BBC film crew first on the scene had their footage deleted by police because 'it could be evidence'. That only make sense if it was evidence of a hoax. Other obvious anomolies in the narrative explained here. Recommended for non-sheoples.
?Virginia WDBJ Shooting Hoax: Crisis Actor REVEALED! Victim's BF Chris Hurst - YOU'VE BEEN OUSTED!!!!?
https://www.youtube.com/watch?v=a6E73GWjWCs
?Virginia Shooting Hoax: CNN CRISIS ACTOR? Former Worker Fondly Recounts "Victims"?
https://www.youtube.com/watch?v=EbyyaJGLGtw
?WDBJ Virginia Shooting: Freemason-Illuminati Media HOAX!?
https://www.youtube.com/watch?v=v_gYyVXMF88
?BBC Forced to Erase Footage of Virginia Shooting Aftermath?
https://www.youtube.com/watch?v=6vf8pV8KfpE
This is neither a bear or bull market. It's not even a market. It's simply a managed process whereby the people of fths world are subjected to two vice like pressures. The first is a process whereby they are drained of wealth, job, well paying jobs, their homed etc etc with debt being the crucial enabler of this process. The second process is the relentless attack on freedoms through surveillance, police thuggery, control of the courts and the politicl process etc etc.
All these things have the express purpose of exhausting the resources and the will of the people as well as their ability to think and react. In the end the vast majority will become compliant ad the minority will either be powerless or targeted or forced to conceal their true disgust with the system.
Cramer said as long as we turn green today we are ok.
Can't that whore have a fucking heat attack?
As long as he has it while he is on TV. It will be the most replayed and most watched segment on you tube.
"You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes." - Morpheus, The Matrix
That quote could've been better worded. Something to the affect of taking the blue pill you stay in wonderland, taking the red pill the bullshit ends, would make more sense to me. At least for our situation.
Ever heard of a Dark Night of the Soul?
Supposedly each man will face one... not sure about women maybe they face it when they are in grade school.
Anyway it is supposed to be like the Death of the Shaman... which is actually the death of the normal man as he gets reborn as a shaman.
Obviously it is suppose to be a Significant Emotional Event that changes your life.
That is like what taking the Red Pill seems to be all about.
- I don't think any of these are original ideas
The Matrix series (particularly the first movie, the others not so much) was one of the most subversive things to ever get out of Hollywood. There is no way something similar would get produced today.
Remember this was all before 9/11 and the constant false flags since...
Society will never collapse, so just play along with the deceptions. Truth is invented.
Great Roman Empire -> Dark Ages
Medevil all ready
Was seriously beleiving that bear markets were like rocking horse shit - they do not fucking exist I tell ya!
That's the new motto of the central banker planned world.
Can I just go back to Monday and start the week over again? It was a doozy....but I survived. Barely.
Red pill/Blue pill. That's why I posted "01/18/2008 - Understanding Gold IS Taking The Red Pill" at http://GreatRedDragon.com
Nevertheless BTFD worked perfectly again. Now buy the FATH
The truth? There isn't any red pill or anybody really in control.