The 1 penny plan

Senator Rand Paul was on Larry Kudlow’s radio show today and he pointed out that neither the Boehner plan nor the Reid plan cuts Federal expenditures.  Rand Paul is a proponent of cutting actual spending by 1% per year for a number of years until we can balance the budget.  They call this plan the 1-penny plan since it cuts 1-penny from every dollar.  I was surprised to learn that the current debt “negotiations” are about reducing the amount of GROWTH in spending not cutting actual spending! 

That is the reason that there is little serious discussion about a Balanced Budget Amendment to the Constitution.  It appears that only the radical right (at least that’s the way the media portrays them) wants a balanced budget.  Democrats don’t support it because it might hurt the poor (and the Demos chances for re-election); the Republicans (for the most part) don’t want it because it might hurt the military industrial complex and business in general (and the Repubs chances for re-election).

If we are not talking about real cuts in spending, and not really balancing the budget, our country may be truly finished.  Can we afford to keep talking about the short term with no consideration for the long term?

The Commonwealth of Virginia works very well with a balanced budget requirement in our Constitution.  We need a balanced budget amendment in the Federal Constitution to force the politicians to do their jobs.  

More on the Debt issue from the CATO institute

Here’s a little more on the Debt issue from the CATO institute at http://www.cato-at-liberty.org/cbo-report-reveals-spending-disaster/

They point out that over the last 40-yrs federal revenues have been around 18% of GDP.  Bill Clinton was able to balance the budget on revenues of 18-19% of GDP.

The recession and high un-employment exacerbate the Debt because revenues drop during the recession.  The Blue column shows revenues of only 15% GDP in 2011

The Congressional Budget Office projects that by 2021, revenues will again reach the typical 18% of GDP value.    

Spending projections in Red show the problem is on the spending side. 

I think you can make an argument for increased taxes until the economy becomes stronger; then you could reduce taxes to hold revenues at 18%, based on past history.  Either way the cuts required to balance the budget are huge.

Bad data gave a Bad signal – NTMS didn’t issue a Sell last week

Verizon “over-nighted” a router that we got yesterday so I am back in business.  The news wasn’t all good when I started going thru the data, because some of the data was bad.

I know a lot of people just read my blog and don’t buy and sell following the daily guidance; however, it is a huge irritant to get bad data from Yahoo and act on it, only to find out later that the data was bad.  Yahoo reported very high volume on 27 July at the close.  I commented at the time it seemed high, but I checked it vs. the NYSE and it seemed possible that it was correct, given the big down day. 

Now Yahoo is reporting only 3.5 billion shares traded on the 27th…a lower than average day.  When I input the historical Yahoo data (or a higher value adjusted for NYSE volume) for the 27th, the analysis did not result in a sell signal last week.

So I sold unnecessarily (at least as far as the Navigate the Stock Market system goes).

My portfolio is structured so that all I have to do is sell my 401k and I am 30% invested.  The reason I leave 30% in stocks, rather than going to zero, recognizes that I may be wrong and hedges the bet somewhat. 

An easy way to structure a portfolio to buy and sell without too much work is to put about ½ of your stock portfolio in SPDRs (SPY), the S&P ETF.  Then if you want to cut back in stock holdings, just sell the SPDRs.

NTMS remains HOLD.

At this point I am 30% invested and will watch market action before I move back in next week.   NTMS could easily drop to a Sell next week and we might look smart in spite of the bad data.  I think we will have a big rebound if the Politicians take effective action. 

BUT…the market could judge that the agreement (if they make one) will not be effective or may actually hurt the economy.  There is no certainty that an agreement will result in upward movement of the market for more than a day or two if that.

Some issues follow:

DEBT CRISIS.

If you had asked me a few weeks ago, I would have said that Obama seemed to have the right mix.  Reversing some of the Bush tax cuts seemed reasonable, but a look at some data shows a dangerous trend.  The Federal Budget is now 25% of GDP.  That is a new record for peace-time.  It was around 50% in WWII.  While we call Afghanistan and Iraq wars, the expenditures aren’t anywhere near WWII.  So it would seem that the Tea Party has a legitimate point.  When Government crowds out private industry, then you no longer have free enterprise – you have Government as the economy and I have no confidence in the ability of Government to manage any part of the economy.  Where should you draw the line?  25% seems like a reasonable place to me.

Libertarian Congressman Ron Paul said he would not vote to extend the Debt limit again.  He pointed out that it was intended to set a limit on the debt (duh) and the Government was already bankrupt.  What did he mean?

I did some math a year or two ago and found that if we paid off the Debt in 30 years at 2% interest it would take additional taxes from every taxpayer (100-million of us) of about $1,000…every month!  Sounds crazy, but the debt was $140,000 per tax payer 2-years ago, so basically, we each owe another mortgage.  Ron Paul is simply stating the truth – we won’t pay the debt back.  That is why the Federal Reserve and treasury want inflation.  If we have inflation of 4% per year, the Debt will be cut in half in 18-years (vs. GDP), because we are paying back the debt with inflated dollars.  Those dollars will be worth half as much. 

Another “benefit” of inflation is that your house will be worth twice as much in 18 years (assuming 4% annual inflation) and you feel richer.  But in fact, since all money will have ½-of today’s buying power, we will all be much poorer unless we get 4% pay increases each year.

Enough said. 

IMPACT TO THE STOCK MARKET.

The bottom line of all this is that we are entering a period of austerity immediately after one of the largest spending sprees in history brought to us by Bush and Obama.  (Pick your poison, Republican or Democrat makes little difference.)

The economy will experience very slow growth…no growth…or recession.   

The stock market is likely to advance slowly, at best, and be downright negative at worst.  The Bear market is far from over.  

The market turns negative and so does the NTSM system

The Navigate the Stock Market analysis changed to SELL as of today’s (Wednesday’s) close. 

Price: Price action that had been positive for some time turned to neutral today on the huge volume. 

Volume: Our volume indicator went negative on the big volume.  Volume was about twice normal.  It was so high on the S&P 500 that I wasn’t sure it was correct, but the volume on the overall NYSE was double yesterday’s so Yahoo’s data is probably right today.

VIX turned negative after several huge days of increases.

Panic Indicator: Our Panic indicator also flashed Sell on the huge down day.  (Today would have been a Sell even without the Panic indicator.)

Big down days are often followed by some movement in the opposite direction so maybe we’ll get a reprieve Thursday…at least for a while…but there’s no gurantee on that call.

I think this is cause for concern so I will get out tomorrow unless there is some movement on the Debt negotiations.

Our router died today so I am writing this from Starbucks using their WiFi.   Since I doubt that Verizon will get us going anytime soon, there may be a couple of days where I don’t post.  Hopefully, I’ll be able to get over here tomorrow and post.

Unless there is some very good news on the debt negotiation front (or a huge panic down day) Thursday, I will sell some more stocks and move to a 30% invested position.  (I won't sell on a huge down day because I'd expect a reversal and another chance to sell later.)

We could have a rapid reversal to the upside, so I am not wild about selling, but I will follow the NTSM analysis and be cautious.  There are some talking heads on CNBC pointing out that no one is talking about actually solving our debt problems and the bandaids proposed don’t really address the issues.

Remember, we are still in a Bear market and I recommend a level of caution much higher than normal.

Navigate the Stock Market analysis remains HOLD as of Monday's close

Not much change in the overall NTMS model.  VIX got worse. Other indicators improved.  The market believes that the Debt ceiling will be raised. While there was increased volatility Monday, we didn’t see a huge breakdown in price.  Apparently, the market does not share my pessimistic (or perhaps I should say defensive?) view regarding the debt ceiling.

Yahoo reported volume 10x higher than normal Monday, but I think that is an error since the NYSE volume was right in line with norms.  Over the past year I have noted several times when the Yahoo volumes were wrong so this is not unprecedented.

NTSM is HOLD today.  Since we had a previous Buy indicator we are holding long. (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I remain 50% invested.  That is my fully invested position for the time being.

I am still Long – the Navigate the Stock Market analysis is HOLD

The NTSM model improved slightly at Friday’s close.  Some further up movement may switch it to Buy, however, that will not change my invested position because I am already fully invested on the long side…at least until the Debt negotiations are resolved.

Here’s an excerpt from last Monday’s weekly Market Commentary by John Hussman, PhD.  He wrote, “The overall market picture continues to have the look of a broad topping process, in which it's very common to see the market confined to a trading range of about 5-7% for 6-8 months. Still, our investment position isn't driven by the expectation of an oncoming bear market, and we'll remain flexible to changes in the ensemble of market conditions.” - John P. Hussman, Ph.D., 18 July 2011 Weekly Market Comment, http://www.hussmanfunds.com, used with permission.

I couldn’t agree more.  The reversals we’ve seen in the NTSM system have indicated a lack of direction in the market for several months.  That may change (for better or worse) depending on what the clowns in Washington manage to work out to solve the National debt. 

I am not at all convinced this will end well.  With only 50% invested now, I have some cash available if we get a big pull back that looks like a buying opportunity.  It also provides some protection if the pullback looks like more than a short term event.  If we get a Harry Potter ending (happy), I’ll miss the first day or two of the rally – I can live with that.

NTSM is HOLD today.  Since we had a previous Buy indicator we are holding long. (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I remain 50% invested.  That is my fully invested position for the time being.

The S&P trend is now UP

I commented a few days ago that I thought the S&P 500 was in a down trend.  That view changed today because today’s up move to 1344 pushed the S&P above the 1 July value of 1340.  To discern the trend, I look at only days that I call statistically significant.  They tend to be the bigger days (up or down) that exceed NTSM statistical parameters.  1344 is greater than 1340 (another statistically significant day) so now we can state that the trend is up.  That’s a curious way of looking at the market, but it seems to work and provide a valuable piece of information.  If you look at the S&P chart since the end of April you’d have to say the overall trend was down since we haven’t broken above the old high.  So we know something that other traders will take a while to figure out.  Well, I won’t tell anyone if you won’t.

I have also noted that there is a tendency for big (statistically significant) days to be followed by some retracement in the opposite direction.   About 60% of the time the next day is down.  The correlation-% is higher over the next week or so.  In other words, if you look out a week or two, it is, surprisingly, down 75% of the time.  Sounds like we should be rich right?  Unfortunately the numbers I just gave are only true if there is a lot of volatility and we don’t have that now.  So it becomes an academic exercise.

Let’s talk about the Navigate the Stock Market analysis.

The up moves keep getting bigger so our Price indicator is bullish.  The other 7-indicators in the categories of Sentiment, Volume, and VIX are all neutral.

NTSM is HOLD today.  Since we had a previous Buy indicator we are holding long. (See the page “How to Use the NTSM System” – the link is on the right side of this page).

I remain 50% invested.  That is my fully invested position for the time being.

No change in the Navigate the Stock Market model

The NTSM analysis is still Hold.

I remain 50% invested.  That is my fully invested position for the time being.

Quick Post tonight…

The VIX indicator dropped to neutral.  That’s good.

No change to the NTSM status; still a hold.  I am concerned about lack of breadth and the overall upward trend in VIX.  

It looks like the current trend in the S&P 500 is down based on a review of the charts and statistically significant days.  With a down trend in place I may sell over Debt negotiation concerns. I'll probably wait a little longer though, to see what happens.

Are our politicians incompetent enough to crash the markets over debt reductions? 

I remain 50% invested.  That is my fully invested position for the time being.

VIX rises again…

VIX was up 7% today…never a good sign.  Our VIX indicator turned negative today.  Sentiment is also negative (too many Bulls last week, believe it or not).  The Price indicator is Buy today so that is keeping the NTSM system in the green, i.e. the overall indicator is neutral or Hold.

Still watching the Debt negotiations.

I remain 50% invested.  That is my fully invested position for the time being.

US Debt talks could derail the Market...

From  “Breakout” by Jeff Macke
http://finance.yahoo.com/blogs/breakout/markets-sell-off-no-debt-deal-reached-schoenberger-174021777.html

Standard & Poors' announced that they would downgrade U.S. debt if the debt issue isn’t resolved almost immediately. They said they may downgrade the U.S. down a notch or two regardless of an agreement if the deal isn't aggressive enough.

Todd Schoenberger, Managing Director of LandColt Trading LLC says "traders right now know that they gotta get a deal done. If it's not done, markets will sell-off."

I couldn’t agree more...in the short term.  If the talks fail, there will be so much pressure on the Politicians they will reach an agreement.       

The Navigate the Stock Market analysis is neutral (Hold) today.

I remain 50% invested.  That is my fully invested position for the time being (until Debt issues are resolved).

Sentiment hits overly bullish level…

I only have time for a short post...

The Sentiment indicator moved negative today at 66% bulls.  The Price indicator went positive.

We’re still a Hold but the NTSM analysis is looking more negative now.

I remain 50% invested.  That is my fully invested position for the time being. I really want to see what will happen to the US debt issue before committing additional funds to the stock market

The Wednesday Update of the Navigate the Stock Market System

SUMMARY OF NTSM INDICATORS:

As of today’s close, our 4-areas of market analysis present the following picture:

SENTIMENT:  Neutral.  Sentiment is up to 63% Bulls.  That’s really amazingly high, given everything that is going on in the world.  Alcoa’s positive earnings definitely pushed up bullishness.  Sentiment is a contrary indicator – high bullishness generally predicts bad market action ahead.  That’s not always true, however; sometimes the herd is right to be feeling good. 

PRICE: Neutral.   The upside moves have been pretty good over the past month or so, but this indicator is stubbornly holding on to a neutral position.

VOLUME: Neutral. Our variant of On Balance Volume switched to Hold today after 2-weeks of buy indications. 

VIX: Neutral.  The daily value of VIX is up 25% in the last 7-trading sessions, The VIX indicator has not been a buy for 2-months. 

Overall the NTSM analysis is neutral on the market, recommending a HOLD.

I remain 50% invested.  That is my fully invested position for the time being. I really want to see what will happen to the US debt issue before committing additional funds to the stock market. 

Sentiment is all bullish…

A week ago I commented that Sentiment looked benign and was around 50%.  Since then sentiment has shot up to 63%-bulls (based on the amount of money placed in selected Rydex leveraged funds) and is nearly giving us a sell for that one indicator.  It takes more than one indicator to turn the NTSM system to the dark side though, and all the others are still bullish or neutral at this point.

 
My inclination is that the bullish sentiment is not a contrarian call, i.e., the correct call is probably long now.  That is especially true after Alcoa’s earnings beat today and that seems to indicate the world economy is not as bad as all the debt crisis publicity would have you think.  (Alcoa’s earnings were up 2.5 times last year’s 2^nd quarter.) We also have not seen the huge one-day spikes in sentiment that usually precede a significant top.  In the end, it’s all about earnings and if earnings continue strong, the European debt crisis is just a red herring.

The US debt negotiations, too, are likely to be resolved, although the resolution may only come after some dislocations (a fancy word for panic and pain) in the market.  But again, if the earnings are there, the market will quickly improve even if there is some sort of short term US payment of IOU’s rather than real cash.  Note that I don’t call it a default, because the US won’t default on its bonds.  The cuts necessary to balance the budget overnight (44% cut in spending) will take place elsewhere – not to the holders of our debt (China et. Al.)

The Navigate the Stock Market analysis remains HOLD which is its neutral position.

I remain 50% invested.  That is my fully invested position for the time being. I really want to see what will happen to the US debt issue before committing additional funds to the stock market.  This could still be a huge mess – even if it turns out to be relatively short term. 

In summary: Long-term I am bullish; short term - i'm keeping my head down.

Posting Early - No change in outlook

I'm posting early today and using the 2PM data.

Unless something drastic happens before the close, the NTSM system remains neutral with a HOLD recommendation.

I remain 50% invested and that is my current "fully-invested position" until we see some sort of resolution on the Budget negotiations.  This might turn out to be a buying opportunity; then again, it could turn ugly.

The jobs report Friday was awful…

From http://wallstreetpit.com/79145-unemployment-report-july-8

Consensus estimates for this report had an increase of 105k jobs.  The non-farm payroll report reflected an increase of a mere 18k.

The unemployment rate moved higher to 9.2% from 9.1%.

The average workweek declined by .1 hour to 34.3 hours.

Private payrolls did increase by 57k jobs but that was nowhere close to the expected increase of 125k jobs. Public payrolls declined by 39k.

The market responded by moving down 0.7%.

Breadth (advancing vs. declining stocks) continues to get worse on a long term basis.  That’s not healthy since it shows that the number of stocks advancing is falling even as the market has continued upward.  

The Navigate the Stock Market analysis remains HOLD which is its neutral position.

We can only guess whether it will turn up or down.

I remain 50% invested.  That is my fully invested position for the time being.

WARNING...Political Rant: I am an independent voter so I have problems with both republicans and democrats, but I think the republicans have reached a new low during the “debt negotiations.”  They are a bunch of lying ideologues when they state that we must cut spending instead of raising taxes in order to save jobs and the economy.  What they know, but won't say, is that cuts in spending will hurt the economy just as much as raising taxes. 

If the Government cuts defense spending and doesn't buy as many tanks, what happens?  The tank manufacturers will lay off workers, jobs will obviously be lost, and the economy will suffer.  It makes no difference whether the Gov't cuts a trillion dollars of spending or increases taxes by a trillion dollars, there will be negative impacts to the economy. 

I worked in Government long enough to know that we will need both tax increases and spending cuts to dig our way out of this hole.

From the perspective of this Blog, the Debt negotiations may bring a significant change in the stock market.  It could be down, as traders worry that spending cuts and/or increased taxes will bring about a double dip recession...or perhaps there will be no deal.  Maybe it will be up, and we’ll have a relief rally.  I’m not making a prediction either way – I will watch how the market moves and use the NTSM model to give us an indication of the future market direction.

Good day on Wall Street today…

VIX was down over 2% today; that’s good news.  It still needs to be watched, though.

Sentiment is OK.  Our sentiment indicator is a mildly elevated 52% Bulls.  The NTMS sentiment indicator is set to call a sell at 66% Bulls.  The significance of reasonable sentiment is that there is room for further improvement in the market.

So far this year we have had 2-sell signals and the NTSM system is essentially even with the S&P 500.  In Feb the drop was only 6.5%. In June the drop was 6%.  Frankly, I have tried to set the NTMS system so that it does not call sell signals unless we expect a drop greater than 10%, but really, we can only set the indicators based on past history, so the Buy/Sell signals will always be somewhat loose.  I am pleased to be even with the S&P’s performance (within ½% of even anyway).  I would expect better results if we were to see a significant correction.  NTMS needs volatility to work best.

The NTMS was neutral today at Hold.

I remain 50% invested.  That is my fully invested position for the time being.

VIX – Signaling trouble ahead?

Our VIX indicator is currently in neutral territory, but there is a troubling trend in the VIX overall.  Since the end of April the VIX has been making higher lows and higher highs, in other words, VIX is trending UP.  That is a dangerous trend that will have to be watched.  I suspect the budget wrangling is causing traders to react pushing VIX upward.  This could portend another correction; on a more positive note, it could also signal a big move up if the budget stalemate is resolved.  VIX doesn’t really predict the direction of a move – it just predicts more volatility (larger moves) ahead; but normally, Higher VIX means lower S&P.

The Navigate the Stock Market analysis is HOLD today.  The small Up-move sent up a cautionary flag that caused the system to drop from yesterday’s Buy.

I remain 50% invested. 50% is currenly my “fully invested position”

Big up-days and small down days in the Stock Market…no complaints

Big up-days and small down-days are sure to make our Price indicator happy and today that indicator moved to a Buy recommendation.  The Volume indicator has been Buy for a while so today the NTSM analysis moved to BUY overall.

We recommended a Buy at the close on 17 June and reentered the Market on Monday 20 June.   We are up nearly 5% since that Buy recommendation.

The NTSM BUY signal today just confirms that conditions are improving in the near term.

The Clowns in Washington continue to threaten to keep the Debt Limit where it is until they work out some sort of compromise.  Compromise does not seem to be in the vocabulary of many of the newly elected members of the House.  Many of them pledged not to raise any taxes.  That is unfortunate.  I know from personal experience that it will take spending cuts and tax increases (both) to get us out of the debt-hole we are in.

That is one reason that I am only 50% invested in Stocks.  I will probably remain there until we get some word from Congress how they plan to get us out of the Debt mess.  In other words, 50% is my “fully invested position” for the time being.

Friday’s ISM # was a positive surprise…

The Institute for Supply Management, a purchasing managers group, said Friday its manufacturing index registered 55.3 last month, up 1.8 points from May. A number above 50 indicates expansion.  Economists were expecting weakness in U.S. manufacturing. According to a survey by Briefing.com, the index was expected to register 51.1, down from 53.5 the prior month.

We’re at the halfway point for the year so it may be worthwhile to see how the NTSM system is working so far.  As of today, the NTSM system is up 6% while the S&P 500 is up 6.5%, so we have slightly underperformed the S&P 500.

Risk adjusted you’d have to say that’s pretty good considering that the NTSM system has only been in the market for 72 of the 180 trading days (approximately) this year.  The other 108 days we have been in cash.

The Navigate the Stock Market Analysis is currently HOLD but indicators are improving and we should see a Buy soon.

Even so, we re-entered the market on 20 June based on volume analysis.  (Too bad we had internet problems that delayed the re-entry by a day or the NTSM system would be even now.)

I am currently 50% invested in stocks overall.  That’s a conservative stock allocation simply reflecting the high degree of unresolved issues in the market place and my status as an old guy.