Tuesday, April 30, 2013

Chicago PMI Contracts i.e., Manufacturing Shrinking

“Chicago PMI slumped to 49.0 in April, down from 52.4 in March and at a reading indicating contraction. That’s the worst reading since September 2009.  Economists polled by MarketWatch had expected a 52.5 reading.”
Story at…

“The Conference Board’s index rose to 68.1, exceeding the highest projection in a Bloomberg survey, from a revised 61.9 in March, data from the New York-based private research group showed today. Economists surveyed by Bloomberg forecast an increase to 61.  Gains in the stock market, an increase in property values and cheaper prices at the gas pump are helping stabilize household wealth…“The fact that they feel a little bit wealthier will give them a little more leeway,” said Brian Jones, senior U.S. economist in New York at Societe Gererale.”  Story at…

Josh Brown of Fusion Analytics:
"It's only the third time in history that we've gone from January into May 1 without a 5 percent correction.," he said. "The other two times, you didn't get a great result afterward..."

Brian Kelly of Shelter Harbor Capital:
"History is on my side, and I'm still selling."

Dan Nathan of RiskReversal.com:
"This week, we saw names like Bristol-Myers, Amgen, Procter & Gamble, AT&T – these are all defensives with pretty decent yields that have been pretty crowded trades – they all got nailed," he said. "I think you have to keep your eyes open."
Full story at…

“Sometimes in history, investors feel so confident about the future of stocks that they actually use up all their available cash and then borrow money to invest in the market. Now is one of those times!  …only one other time in history has negative net worth been this low, which was the tech bubble back in 2000.” – Chris Kimble posted at dshort.com. 

Chris Kimble points out that there were two other times when negative net worth approached this level, but did not get as extreme.  Those were in 2007 (50% S&P 500 decline) and 2011 (17% S&P 500 decline).  Full post with charts at…

I have on several occasions written about the lack of jobs in the economy as represented by the number (or percentage) of Americans actually working.  The wall Street Journal had a good article on the subject.  WSJ noted that lack of jobs is clearly a problem and many have quit looking for work, but there are other factors that mitigate the problem.  See below:

“Americans are leaving the labor force in unprecedented numbers. But the trend has more to do with retiring baby boomers than frustrated job seekers abandoning their searches.   The share of the population either working or looking for work in March hit its lowest level since 1979. The measure, known as the participation rate, now stands at 63.3%, down from 66% when the recession began. That represents close to seven million workers who are now "missing" from the labor force…the labor force is missing about three million workers who aren't in school or retired. That is still significant: Add those workers to the unemployment rolls and the jobless rate would jump to 9.3%. But it suggests the decline in participation is about more than a weak economy.”  Full story at…

If you haven’t heard, there has been a flap among economists over an error in a spreadsheet by Ken Rogoff and Carmen Reinhart where they argued that a debt of 90% of GDP would bring low-growth or recession.  This was in a paper by the economists, not in their book, “This Time is Different”.  The conclusion that 90% is a critical level for debt to GDP ratio is apparently not correct, but the general conclusion that too much debt leads to slower growth is valid.  Here’s an interview with Niall Ferguson.

“The headlines have done a disservice to Ken Rogoff and Carmen Reinhart,” Ferguson notes. “It’s extremely implausible that governments with already high debt can improve their situation by making their debt even larger. High debt scenarios end with inflation or default. They don’t end with a rapid increase in the growth rate. A minor error in the Rogoff and Reinhart paper does not refute the case that governments with excessively large public debt have to bring them under control.” - Niall Ferguson, Harvard University history professor and author of “Civilization: The West and the Rest”

He went on to suggest that the United States position is actually much riskier than Japan because Japan’s debt (200% debt to GDP ratio) is funded by its citizens while the US debt is funded by foreigners.   Video at…

Tuesday, the S&P 500 was up 0.25% to 1,598 (rounded), another new high. VIX was down 1.4% to 13.52.

Today was a high volume day with volume about 20% higher than this month’s daily average.  Perhaps it was end of the month window dressing for the fund managers?

Tuesday, the NTSM analysis was again at HOLD at the close.  All indicators are neutral, but Sentiment is rising quickly and may switch to sell soon.  It is not likely that the NTSM system will switch to sell since other indicators are solidly in neutral.      

Put this on permanent repeat…A statistically significant day (about a 1% climb in the S&P 500) will signal a top to me.  I am guessing the top will be when the S&P 500 climbs another couple of percent higher. 

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…

The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.