"It is a bloodbath. We’re at the highest point of fear and uncertainty now.... God only knows what’ll happen if oil doesn’t rebound. I try not to let that penetrate my mind."
"The end of QE mattered" admits BofAML, adding that "the impact was not replaced by BoJ or ECB dollars." It is this new 'hostile' investment backdrop as liquidity cheer swings to illiquidity fear (and two years of non-stop "pain trades") that has faith in the big three bull beliefs fading fast. October's "pain trade" has been a broad-based rally in all risk assets, but there are a number of factors preventing BofAML getting more bullish now that risk has surged.
"There IS An Alternative" - Since The End Of QE3, Financial Market Returns Are Negative... Except The US DollarSubmitted by Tyler Durden on 09/25/2015 07:10 -0500
"The big upside for both corporate bonds & corporate stocks has subsided as the liquidity story has peaked. Of greater note, the recent big reversal in the performance of assets directly linked to the bull market on Wall Street. Private equity managers and large asset managers saw their stocks appreciate 36% & 32% respectively between QE1 and the end of QE3. Since the end of QE3, the annualized returns are -10% & -18% respectively."
The technical pattern for S&P 500 and many other US and global equity market indices is sell rallies, according to BofAML's Stephen Suttmeier, who notes that the market is as overbought now as it was in July. Current price action suggests “dislocation” rather than “capitulation” and we continue to see the risk of retest / undercut of the August 2015/October 2014 lows of 1867-1820.
"Asia banks indicate in coming weeks markets at early stage of crisis; Q3 EPS shows recessionary global economy. Crowded Discretionary, Banks, Tech & Eurozone most at risk should peak liquidity coincide with EPS recession, SPX<1870, GT30<2.8%, DXY<93...at least until new extreme policies introduced (Fed QE4, China QE1 or a G7 shift toward fiscal policy stimulus)."
Great Unrotation: Biggest Outflow From Equity Funds In 2015 Offset By Longest Treasury Inflow Streak In 4 YearsSubmitted by Tyler Durden on 09/11/2015 07:09 -0500
While the massive, $19.2 billion outflow in the week of the August 24 flash crash was understandable, as the market's record complacency was shaken by days of violent selling, as was the snap rebound inflow of $5.8 billion the following week resulting from oversold conditions, the fact that EPFR reported that in the week ended September 9 equity outflows once again surged, rising to a total of $19.4 billion - greater than two weeks prior, and the largest of 2015 - will cast doubt that the recent market correction is a one and done event, especially if the selling becomes a self-fulfilling prophecy.
It is what happened in investment grade fund flows in the latest week that is making CEO, especially those whose compensation is a direct function of how much stock they repurchase, very nervous because as Lipper reported overnight IG funds just saw $1.8 billion in outflows, the most in over two years or since June 2013. And without the fund inflow train into IG funds operating smoothly, suddenly stock buybacks appear in jeopardy...
Wondering why stocks are surging this morning - aside from Fischer's comments, OPEC rumors, Greek bank recaps, and JPY ignition? Perhaps it is the veritable swarm of professional technical analysts out with notes warning of significant problems ahead. From John Hussman's refined Hindenberg Omen and Carter Worth's "sell stocks, breadth is a problem," to Oppenheimer's warning of "seasonals and weak internals," and Louise Yamada's "stocks are vulnerable, keep cash on sidelines" warning - it appears today's early bounce is as much about contrarian oversold bounce as it is about any macro news. But with 73% of the largest 1000 stocks at least 5% off their highs, stocks remain fragile as they push back towards highs.
"Investors have experienced many mood swings, some institutionalized irrationality, as well as treacherous trading conditions in the first six months of 2015. The wacky has become the norm."
Stocks may be ignoring the 'dollar' and liquidity more broadly (at least as far as repurchases are concerned) but the continued stress in the eurodollar world has had an accumulating effect in some places. Primarily that has been shown in the once-thriving junk space, including more illiquid “products” like leveraged loans... By and large, there seems to be renewed concerns about liquidity, economy or both.
Episodes of “corrections” are apparently happening more frequently according to BofAML's credit strategist Barnaby Martin and given the extremities of liquidity, profits, technological disruption, regulation, and income inequality, BofAML warns 'gently' that the potential for a cleansing drop in asset prices cannot be dismissed. Most likely catalysts: Consumer, Rates, A-shares, Speculation, High Yield. "We advise selling risk into strength, buying volatility into weakness, advocate higher than normal levels of cash and would add some gold."
"The median stock in the S&P 500 is the most expensive it has even been (for as long as we have data). That's never a good sign! If your favorite valuation indicator is not at 'the highest ever', then it is likely now at 'the highest ever except 2000'. That's not good company unless you are a short seller."
Operating and reported earnings have turned sharply lower over recent quarters which has historically been associated with major market peaks. As shown below, it is also important to notice that revenue has tended to lag these downturns in earnings previously. This is because the measures used to substantially boost profitability from each dollar of revenue generated through accounting gimmickry, share repurchases, and cost cutting are finite in nature. When the effect of those manipulations fade, so does the inflated profitability generated from each dollar of revenue. This will be something worth watching closely over the next few quarters particular as the commentary of a "continued secular bull market" continues to hit the headlines.
Chris Mayer: No Big Theme in US Stocks, Just “Special Situations and Quirky Opportunities” (Sprott’s Thoughts)Submitted by Sprott Money on 03/07/2015 06:16 -0500
There’s a big macro theme playing out in Europe – a once soft economic environment that allowed lots of inefficiency is becoming tougher and forcing companies to restructure, says Chris Mayer, author of Capital & Crisis and Mayer’s Special Situations.
There is compelling evidence that 2015 will see a global slump in economic activity. This being the case, financial and systemic risks will increase as evidence of the slump accumulates. It can be expected to undermine global equities, property and finally bond markets, which are currently all priced for economic stability. Even though these markets are increasingly controlled by central bank intervention, it is dangerous to assume this will continue to be the case as financial and systemic risks accumulate. Precious metals are ultimately free from price management by the state. Furthermore, they are the only asset class notably under-priced today, given the enormous increase in the quantity of fiat money since the Lehman crisis. In short, 2015 is shaping up to be very bad for fiat currencies and very good for gold and silver.