World and US Recession Risks

LONDON (MarketWatch) — The chief of the International Monetary Fund, Frenchwoman, Christine Lagard,  “…warned on Monday that the global economy could slide into a “1930s moment” unless Europe deals with its debt crisis and other economic powerhouses such as the U.S. and China fulfill their responsibilities.…Lagarde urged the euro zone to…adopt some form of fiscal risk-sharing, such as the creation of euro-area bonds or a debt redemption fund. “Political agreement on a joint bond to underpin risk sharing would help convince markets of the future viability of European economic and monetary union.”

<My comment: So far, that doesn’t seem likely since it is really aimed at Germany (the strong) paying to prop up other Eurozone “partners” (the weak).>

In her speech, the IMF head said that in the US, “The key policy priorities must be to relieve the burden of household debt and to deal decisively with the issue of public debt.” Full story at... 

http://www.marketwatch.com/story/imf-chief-urges-action-to-avoid-1930s-moment-2012-01-23

While things seem to be getting slowly worse in Europe, the US seems better off, given that earnings have been OK so far and the market has been on a tear upward.

Even John Hussman noted that “Leading economic evidence continues to teeter at levels that have always and only been breached in recessions, but the sharp deterioration we initially observed late last year has been followed by modest stabilization - though still near the area that has historically marked the entry to economic contraction….The interpretation best supported by the data is that recession risk remains very high based on the leading evidence and the typical outcomes that have resulted, but that the rate of deterioration has eased significantly, and it is simply unclear whether this is a temporary pause or a reversal.”  – Weekly Market Comment, John Hussman, PhD, at... http://www.hussmanfunds.com/weeklyMarketComment.html

That’s positively bullish when compared to past posts, but in fairness, I am a huge fan of Dr. Hussman because of his analytic approach and we must continue to be vigilant regarding US recession.

As I’ve noted before, cyclical stocks should underperform if a recession is coming. When I look at the spread between the S&P 500 and the Morgan Stanley Cyclical Index (^CYC), I note that the ^CYC has been out-performing the S&P 500 since the 1099 October low and that out-performance has accelerated since December.  Right now, the market is betting that we won’t have a recession in the US and that is the only opinion that counts when it comes to investing.

Today the NTSM remained HOLD, and that was again caused by market action that has been straight up this month. 

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio. 

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.

IBM, Microsoft and Intel all on a tear? Party like it’s 1995!

IBM was up 4.4% today; Microsoft was up 5.7%, while Intel added 2.9%. All reported earnings yesterday after the bell.  That really took the sting out of yesterday’s Google disappointment.  This helps distance us from the European recession worries; we still must remain very concerned over Default of the PIIGS. (Portugal, Italy, Ireland, Greece and Spain.)    

Dalai Lama when asked what surprised him most about humanity answered "Man,"

because he sacrifices his health in order to make money. Then he sacrifices his money to recuperate his health, and then he is so anxious about the future that he does not enjoy the present, the result being he does not live in the present or the future. He lives as if he is never going to die, and then dies having never lived. - I guess we better spend some of those stock-market earnings!

NTSM UPDATE

Today the NTSM remained HOLD, and that was again caused by market action that has been straight up this month.  Repeating yesterday’s comment: I expect 2-months of strong bullish action after a correction cycle completes, so with luck, we may manage a few more weeks of strong positive results in the markets. 

Bad news might trump the technical analysis so we’ll have to keep our eyes on Europe. 

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio.  I decided to let the trade ride longer because coming off the bottom last fall we could have further to go.

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.

World Bank: World is on the cusp of a new global recession.

Plenty of issues to worry about…

NEW YORK (CNNMoney)  – “The World Bank Wednesday slashed its 2012 growth forecasts for both emerging and developing economies from its estimates of only six months ago, and warned the world is on the cusp of a new global recession that could be as bad as the crisis four years ago…A meltdown in financial markets triggered by the sovereign debt problems in Europe poses the greatest immediate risk, according to the report….The report says developed economies are expected to experience anemic growth of only 1.4%, down from the earlier estimate of relatively solid 2.7% growth.” Full Story - http://money.cnn.com/2012/01/18/news/economy/world_bank_recession/index.htm?iid=HP_LN

…and more from CNNMoney – “The IMF said it is looking to raise up to $500-billion in additional lending resources, including a 200 billion commitment that euro area governments announced last year. The new target is based on the IMF's estimate of $1 trillion in potential global financing needs in the coming years. The IMF said it is in preliminary stages of exploring funding options and consulting with the IMF's membership, of which the United States is the largest contributor.” Full story - http://money.cnn.com/2012/01/18/markets/markets_newyork/index.htm?iid=HP_LN

So we may yet finance the European crisis. 

EARNINGS TODAY

Google fell 10% after hours when they reported net income up 7% over last year, but that was less than expected.  However, all is not lost in technology since Microsoft reported good numbers and were up almost 2.5% after hours.

NTSM UPDATE

Today the NTSM analysis dropped to HOLD, but that was caused by market action that has been straight up this month.  Actually, that’s OK at this point, because the S&P 500 is coming off a significant correction last summer/fall.  I expect 2-months of strong bullish action after a correction cycle completes, so with luck, we may manage a few more weeks of strong positive results in the markets.  Bad news might trump the technical analysis so we’ll have to keep our eyes on Europe. 

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio.  I may take profits on the trade soon to cut some risk. 

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.

Dennis Gartman says, up we go…

Suffolk’s own Dennis Gartman, and frequent guest on CNBC, was summarized in an interview with Kitco News.com on 13 January.  He predicted Dow 16,500.  That’s up 33% from here.  Assuming a similar gain on the S&P 500, that would put the S&P 500 around…ta dah…1700.  That would be a new high for the markets.

I love Dennis, but this bear market isn’t going away that soon.  I would be amazed if it broke 1575 on the S&P 500 in the next 5-years.

Full story at http://www.kitco.com/reports/KitcoNews20120113DeC_interview.html

WHAT DOES HISTORY SAY?

Here’s what I have said in the recent past…

9 Jan Blog Comment: “In the 1966 Bear market, both peaks and troughs seemed to cycle roughly every 4-years, so perhaps this year (2012) will fool all of the pundits (including my previous commentary) and give us another down year as we head down to a MAJOR bottom in 2013.  The last major trough was in 2009.”

<My comment today: As I look at Greece and all of the debt issues in Europe (and even our own), I think a significant drop from this year is VERY possible.  History would support that move.>

7 Dec Blog Comment: “11-years into the 1966 bear market the Dow made lows 25% below the high of the 1966 Bear market (high about 1000).  The Dow went on to make a run upward of 16% in the following year before falling in another Bear cycle.  If we go up 16% from the 1099 low we are in the range of 1275-1300. 

< My comment today: We’re there now.>

7 Dec Blog Comment: I think we’ll make 1290 by year-end and that’s up a little from my previous guess.”

< My comment today: I was only 6-days off on that guess>

3 Nov Blog Comment: “Historically, the smallest increase in the next Bull phase following a bear cycle was 29% in 1911-1912.  That would carry us to about 1420…(but) the high won’t be above 1550.”

< My comment today: Seems reasonable..>

My point (perhaps pointless): My thoughts are completely schizophrenic – we can go anywhere from here depending on the Euro-debt crisis.  Well, enough rambling, let’s look at some news, the market and the NTSM system..

We’ve had good news from China (growth ahead of expectations; good forward comments from Citi (they said the economy looks better); decent earnings so far; it is hard to believe that we have any problems out there; but then…

According to CNN/Money, a “…Fitch official told Reuters Tuesday, "Greece is insolvent so it will default."- Full story at…

http://money.cnn.com/2012/01/17/markets/markets_newyork/index.htm

Just check out yesterday’s blog for possible impacts; however, I don’t want to be a fear monger here.  Collectively the market has put aside Europe for the time being.

The S&P 500 was up over 1% today to 1308.  VIX fell almost 6% to 20.9.

Today the NTSM analysis remained BUY.

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio.  I may take profits on the trade soon to cut some risk. 

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.

The Eurozone Banking Crisis is heating up – Greece Talks Broke Down Friday.

Some quick reports on the Euro crisis:

The WSJ reported Friday that talks between Greece and its creditors broke down increasing the likelihood that creditors will incur huge losses.

As reported by the WSJ, when the Greece debt talks started in July, the loss proposed for bondholders was 10%.  In October the “haircut” was 50%. Since October, Greece’s economy had deteriorated further and higher cuts are now needed. 

This is apparently the “death spiral” proposed by some; Greece’s economy slows from austerity demanded by other Eurozone countries.  Revenue drops from lower tax receipts and the result is that the country is in worse shape than before the austerity began.

In the debt game, it is not a god idea to allow the debt to grow to crisis levels.  It is nearly impossible to fix – are you listening US politicians?

Now as always, we have to relate this to our economy and our banks.  Here’s a repeat of comments I quoted from Robert Reich’s blog from 5 October…

“A Greek (or Irish or Spanish or Italian or Portuguese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008 - Financial chaos…. Big Wall Street banks have lent German and French banks a bundle….The Street’s total exposure to the euro zone totals about $2.7 trillion.

That’s just US exposure.  Can the ECB backstop Euro-banks enough to support the financial system if Greece fails?  Then there’s the US banks.

To get an idea of how critical this may be, we can relate this to a specific case.  Jamie Dimon, CEO of JP Morgan Chase said recently that his bank’s exposure to Europe was relatively unchanged.  WSJ reported the exposure at 15.9-billion.  Earnings were about 4-billion.  So their exposure is 4x their earnings.  It is doubtful that even the well run JPM Chase would survive that calamity.

The market is likely to get very choppy soon, but today, it shrugged off Greece issues and posted a 5pt. gain and moved up to1294 after World markets posted strong gains.  VIX rose 6% to 22.2 so not all of the traders are sanguine about the market going forward.

There was an article on trading in Money magazine this month that quoted an analyst who said, “To be a successful trader, you must be able to predict the future.”  That couldn’t be more wrong.  Follow a system; follow the market; never try and predict the future.  It can’t be done.  That’s why I follow the NTSM system.

Today the NTSM analysis remained BUY.

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio.  I may take profits on the trade soon to cut some risk. 

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.

S&P Downgrades Europe

Today the NTSM analysis remained BUY.

The S&P 500 fell 1/2% to 1289.

Many in the news media reported today that the markets were down because S&P downgraded most of the European countries.  This had been widely anticipated and is of no importance to the outcome in Europe.  The troubles with sovereign debt are so well known, one must wonder why the rating agencies even bother with rating countries.  When they downgraded the US, interest rates hardly budged. 

A more likely reason for the drop was that, as of yesterday, there had only been 4-down days in the last month.  I suspect that some technical traders figured it was time to sell today.   

In the end, guessing the reason for an up or down day is meaningless folly.

Today the NTSM analysis remained BUY.

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio.  I may take profits on the trade soon to cut some risk. 

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.

Spain and Italy Held Successful Debt Auctions Today

Reuters reported the following today: “Spain and Italy spread cheer through euro zone markets on Thursday with solid debt auctions at sharply lower borrowing costs in 2012's first real test of appetite for debt from the euro zone's bruised periphery.

Much of the result reflected the success, at least for now, of what amounts to a back-door bailout by the European Central Bank, which has lent nearly half a trillion euros of three-year money to banks.” Full story at:

http://www.reuters.com/article/2012/01/12/us-spain-bonds-idUSTRE80B0GQ20120112

That is really good news since it will take away one of the major issues overhanging the stock market.  If the European banks have less risk of failing, fallout from a Euro-recession is likely to be much less. 

As I noted a few days ago, December retail sales were disappointing.  As reported today, they were flat from last year’s December.  The good news was that year-over-year retail sales were up about 8%.  That’s not bad.  The fact that December didn’t do as well may be due to the economy slowing; but I suspect that the retailers may have blinked and held too many sales in December, so it is hard to put to much in the December sales numbers.

The S&P 500 was up 1/4%-% to 1296 today.  VIX fell nearly 3% to 20.5.

Today the NTSM analysis moved up to BUY again.

I bought back into the stock market at S&P 500, 1155 on 7 Oct after the 6 Oct NTSM buy signal.  I remain 100% long in the long term portfolio (100% stocks in the 401k.). (See the page “How to Use the NTSM System” – the link is on the right side of this page). 

I am 90% long in the trading portfolio.  I may take profits on the trade soon to cut some risk.  There are a ton of unknowns now.

Just a reminder: 100% invested in stocks is way too much for most rational folks.   Don’t do it unless you have a high tolerance for risk.