“Despite our grave concerns about market risk here, we also have to allow for the possibility that the recent bull market will carry further. Yet it’s critical to understand that allowing for that possibility has rarely been successfully achieved by ignoring overvalued, overbought, overbullish syndromes or deteriorating market action. Rather, the most useful opportunity to respond constructively is on an early improvement in market action, after overvalued, overbought, overbullish conditions have been cleared" - John Hussman, PhD, Weeky Market Commentary for 26 August. Full commentary at...
GET READY FOR A MASSIVE INTEREST RATE SHOCK SOON (CNBC)
“[There is a belief]…that foreign investors have no choice but to
perpetually support the U.S. debt market at any price and at any yield. But … the latest data show weakening demand
in overseas purchases of Treasurys….When the Fed stops buying Treasurys,
foreign and domestic investors will do so as well. This means for a period of
time there won't be anyone left to buy Treasurys unless prices first plunge. The effects of rising rates will be profound on currencies, equity prices, real estate values and economies across the globe. It would be wise to prepare your portfolio…” Full story at…
http://www.cnbc.com/id/100990929
As always…when? The timing of this sort of negative call is the key and it’s anyone’s guess. How soon is “soon”?
LEVERAGE NEAR
CRISIS PEAK (Business Week)
“Company debt
loads in the U.S. are approaching the highest level since the aftermath of the
financial crisis as borrowing to finance mergers and shareholder payouts
exceeds earnings growth. Debt levels
have increased faster than cash flow for six straight quarters, boosting the
obligations of investment-grade companies in the second quarter to 2.09 times
earnings before interest, taxes, depreciation and amortization, according to
JPMorgan Chase & Co. That…compares
with 2.13 in the third quarter of 2009, when it peaked after the deepest
recession since the Great Depression.” Story at…http://www.businessweek.com/news/2013-08-28/bond-binge-expanding-leverage-toward-crisis-peak-credit-markets
Leverage is just a distortion associated with the Fed QE policy of
driving interest rates down. It doesn’t
look particularly worrisome unless earnings completely fall off a cliff.
The issue is earnings though, because any reduction in earnings is
likely to be punished. It won’t take a
huge drop in earnings to cause some real problems for the stock market.
MARKET REPORT
Wednesday, the S&P was up 0.3% to 1635 (rounded) at the close.
VIX was down 2% to 16.49. Wednesday, the S&P was up 0.3% to 1635 (rounded) at the close.
MARKET INTERNALS (NYSE DATA)
The 10-day moving average of stocks
advancing on the NYSE was 44% at the close Wednesday, a slight improvement over
yesterday. Any number below 50% suggest
trouble for the market.
New-lows outpaced new-highs today leaving
the spread at -43 (it was -61 yesterday), with the 10-day moving average of
change in spread now slightly up. The
change in 10-day spread was slightly down yesterday.
Today’s reading of Internals is negative on
the market, but not strongly.
NTSM
Wednesday, the overall NTSM analysis was HOLD
at the close.
MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500
-1540). 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.
