About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Sunday, March 18, 2018

March Overview

The best guess here is that the US economy is experiencing an interim momentum peak with a
mild and short lived slowdown to follow. This peaking process will be the third one since the
economy began to recover from its deeply recessed base back in 2009. My indicators and
observations of inventory levels now suggest the slowdown will not be as long or as steep as they
were following interim peaks in 2011 and 2014. Business profits and real disposable incomes are
benefiting from the large tax cuts recently enacted and slowdowns here will likely be far less
pronounced. With the quantitative tightening of monetary liquidity (QT) having displaced QE,
the stock market will likely remain focused on economic momentum going forward so any
negative reaction in the stock market to a slowdown should be mild.

Trump's first round of protectionism  -- duties on imported steel and aluminum -- looks like it
may resolve into an old fashioned extortion program. the second wave may target China's large
export balance in the US and could be tougher and involve some nasty blow back from China.
This potential trade spat could shake stock market confidence more significantly.

The indicators still show no very substantial inflation potential ahead for the US. My longer
range indicators suggest a much stronger ramp up of inflation pressure, but this is yet to show

I am expecting the Fed to continue to raise short rates in a temperate manner, but I think the
Fed could turn more aggressive later in the year if economic growth picks up again as I expect.

It will be instructive to see if the economic slowdown out ahead in the short run triggers a further
downswing in longer term Treasury yields.

As of now there seems to be little potential for the development of the kind of cyclical credit
squeeze  that normally pre-dates a recession. Liquidity growth is slowing, but short term credit
demand remains exceedingly mild still with worthy borrowers preferring the long end of the

Bobby Three Sticks (Robert Mueller 111) continues to close in on Trump and as he does, there
may be further push back from The Donald. This could prove disconcerting to the markets if
some sort of judicial crisis emerges.

Monday, March 05, 2018

SPX -- Update

The up leg underway since early 2016 remains intact and provides trend support around 2600. The
upward acceleration in the SPX since the 2016 election has not broken in any decisive way, leaving
the SPX with a shot at regaining the highs set in Jan. The market is not at all stable, and if it is to
move higher, it needs to come up through the 25 day m/a with an up turn in the "25" to follow.
 SPX Daily

So far, the SPX is up around 1.7% on the year. It seems as if we have had year's worth of action
all rolled into a little more than two months' time. Most market strategists, although bullish on
the outlook for this year, also foresaw increased volatility as market players contend with the
expected combination of rising interest rates and profits coming along together. For most folks,
that scenario has not changed, nor has the consideration of an acceleration of inflation as the
economic expansion matures. In short, the thinking out there remains that events could lead to
occasional wobbles of the SPX p/e ratio. My fair value model suggests a single figure of SPX
2720 through mid-2019, which is where the market stands now.

There is concern that should Trump apply tariffs to both aluminum and steel imports, a larger
trade war could ensue. However, lets see if he is running a bluff first.

The lack of stability in the market at present calls for you to double check your convictions.

Monday, February 26, 2018

Big Trouble In Big China?

China plans to amend its constitution to  eliminate term limits for the president.  If so, maybe
Mr. Xi can serve more than two consecutive terms. Given China's imperial legacy and the long
run for Mao and Chou, the knee jerk response from outsiders is that Mr. Xi wants those
imperial trappings and may signal a new cult. Could be. And, since this is a bull market, look
for China apologists to put a positive spin on this transition if that is all it is.

To be a contrarian, I offer a different and more dangerous assessment. Suppose the younger Party
climbers and technocrats have indicated to Xi that his generation has created an obvious financial
mess in China and that it is Xi's job to clean it up. There is no new "Great Leap Forward" for
China unless The Party straightens out the country's finances first. A genuine reform transition
would involve efforts to gain control over China's finances, specifically debt creation.
That cannot be done without creating pain and economic and financial fallout that will extend
beyond China's borders. It cannot be accomplished without a president that is in a very strong
position and who can command the Party rank and file to do the bidding necessary to turn
this enormous debt laden boat around. Mr. Xi already tried and failed to generate a super bull
market in equities to balance the debt. Recall that China had to make open market purchases to
keep its equity market afloat. And, if China continues to leverage up and create new entities to
take on its bad debt, the result will be accelerated capital flight, the destruction of its currency
and bitter recrimination from the international markets.

Now, if all Xi wants to do is to become the imperial Xi, that could have dangerous unintended
consequences as well, including an eventual and destabilizing mutiny.

Do not ignore this decision. Comments are invited and welcome.

Saturday, February 24, 2018

Commodity Price Index

The last bull market in commodities ran from the end of 2001 through early 2008. Paced by very
rapid production growth in China, inventory hoarding and intense financial speculation, the CRB
rose from a low of 170 to the 470 level before collapsing over the balance of 2008. The market
staged a strong partial recovery over the 2009 - 11 period, reflecting a global economic advance
from deep recession, a massive fiscal stimulus program by China, and speculative inventory
pipeline rebuilding and the return of intense financial speculation. But, the bear market endured
until early 2016. Over 2011 - 2016, global economic growth was modest, inventories were
slowly unwound, and speculators turned strongly to financial assets.

Materials production capacity expanded rapidly over the decade through 2010, and more recent demand has not been strong enough to take up the slack. Commodities pricing has also been adversely affected by the growth of synthetics, recyclables and new production and and
consumption technologies.

For many years, there was price support for the CRB around the 170 -200 area, but a reading of
200 on the index has now become resistance!  Weekly CRB

As seen, the market has been recovering from its multi-year low of around 160 set in early 2016.
Faster global economic growth over the past couple years has not been sufficient to set off a strong
sustainable rally in the CRB. From a longer term perspective, the CRB is still in a bear market.
The current extended base looks promising, but the index has not strengthened sufficiently to
challenge longer run trend resistance. To attract stronger trader and investor interest, the CRB
needs to break above the 200 level and challenge that first significant hurdle at 230. The CRB
is at huge discounts to the stock and bond market price indices and would attract strong interest
if there is finally a stronger positive response to a swifter global economy.

Tuesday, February 20, 2018

Gold Price

My long term view on the gold price remains that gold will  primarily stay a range bound
trading vehicle until investors become more confident that the global economy is transitioning
from a deflation prone period into an inflationary era when global plant and service operating
rates are more easily challenged by rising world economic demand. A tighter operating
environment tends to foster stronger wage growth and stronger competition for materials and
commercial resources. The very deep global recession and modest economic recovery that
has come along in its wake has left a legacy of excess production capacity and a trend of volatile
but decelerating inflation.

Although the cyclical fundamentals for the gold price have been positive since early 2016, and
there has been a rather mild cyclical acceleration of inflation pressure, it has not apparently
been strong enough to support a sustained rise in the price of gold. Since gold began to recover
in early 2016, the interim price lows have trended higher, but clear longer term price resistance
has formed in the 1375 - 1400 area.  Weekly Gold Price

The gold price is inherently volatile and price action can far outstrip a fundamental approach
to trying to determine a reasonable price for the metal. In recent years speculative surges have
been contained even though gold has fared decently off its 2016 low. The bottom panel of the
chart shows that gold's price has been deteriorating relative to the stock market for a quite a
while. That could change if further economic growth brings increased inflation pressure going

Sunday, February 18, 2018

Stock Market -- This Is A Little Odd

While folks debate the near term future of the market, I content myself with an oddity in the
market internals. The TRIN measures the amount of selling pressure in the market. A high TRIN
signals heavy selling pressure and a low TRIN signals light selling pressure (low volume per issue
sold). During the extended period of market weakness over the latter part of 2015, the 13 week
TRIN reached a high of 1.6, indicating the accumulation of heavy selling pressure.  Weekly TRIN

Notice that despite the dramatic sell-off over the earlier part of February, the 13 week TRIN has
continued to trend down to low levels, and since it's now below 1.00, suggests the continuation of
accumulated net buying pressure through 2018.

Saturday, February 10, 2018

SPX -- Update

According to my cyclical valuation work, I have the SPX as fairly valued at 2610 for 2018 at 2720
through mid-2019. The modest increase in valuation product into next year reflects another year
of positive earnings direction offset by a reduction in the market's p/e ratio to reflect a higher
inflation rate of 3% by mid-2019. Although the inflation pressure gauges currently remain in
rather humble uptrends, that should change as the large fiscal stimulus programs kick in to boost
an already maturing economic expansion. there could very well be an interim period starting in
a month or two when the economy temporarily slows, and market players  run-up stock prices in
the erroneous assumption that "Goldilocks" has returned to preside over a period of more modest
growth and continuing low inflation. If such a strong rally occurs, there might be a classic
"get out " rally to reduce equity exposure.

Despite the current correction, the stock market remains strongly overbought on a long term
basis and mildly overdone in the intermediate term. The main trend of the market remains in
bullish mode with intermediate trend supports around 2600 on the SPX. Longer term trend
support stand around 2500.  SPX Weekly

Do not ask me where the market is going over the couple of weeks. However, by my conservative
trading discipline, I would give the market a hard look for a long side fling if the stochastic
measure (bottom panel of the chart) drops inside the 20 level.