Not all the news is bad:
BARRONS COVER, Saturday
May 19, 2012
Excerpts from an Interview
with Ray Dalio, Hedge Fund Manager…
“Barron's: You've called the current phase of
the U.S. deleveraging experience "beautiful." Explain that, please.
Dalio: …There are three ways to deleverage…
(1) austerity…(it) is deflationary and it is
negative for growth.
(2) Restructuring …(it)
means creditors get paid less or get paid over a longer time frame or at a
lower interest rate; somehow a contract is broken in a way that reduces debt.
But debt restructurings also are deflationary and negative for growth.
(3) Printing money…(it) typically happens when
interest rates are close to zero… Central banks create money…Unlike the first
two options, this is an inflationary action and stimulative to the economy.
A beautiful deleveraging balances the three options…
There is slow growth, but it is positive slow growth. At the same time, ratios
of debt-to-incomes go down.”
Regarding Europe...
“...I would say that there
is maybe a 30% chance in the next six-month to two-year period of a really bad
shock from Europe. And that shock is made worse because there is no clarity of
who has got authority or control.” Full
story at Barron’s Online:
MARKET
The S&P 500 was basically
unchanged Tuesday to 1317 (rounded off).
VIX rose 2% to 22.5. The S&P 500 is 3%
above the 200-day moving average and 7% below the prior high of 1419.
Last year it took 50-days for the S&P 500
to bottom 19% from its top. So far we
are 35-days into this correction.
NTSM
The NTSM analysis is SELL again
Tuesday.
I have seen some
discussion around the web suggesting that this is probably not a major top
since the Sentiment values were not extreme.
I suspect they meant over a longer period. My Sentiment indicators showed extreme bullishness
Wednesday-Thursday-Friday of last week and that pushed our Sentiment indicator
to a sell. This just confirms the SELL
rating that was given by the NTSM system on 9 May. The S&P 500 is down about 3% since the
initial sell signal. I am guessing it
will go lower, but I don’t know how much.
Whether this is a major
top really depends on the future events.
So far my system has identified Tops and Bottoms with reasonable accuracy,
but it doesn’t predict the future.
MY INVESTED POSITION
I reduced my stock
holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal
on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the
right side of this page). I cut my stock
position to 15% on 17 May in order to maintain a 10% gain in a
trading/longer-term position I had in the QQQ.
