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 !!!

Saturday, December 23, 2017

Stock Market Sentiment -- Quickie

When the equities only put / call ratio reaches a low level, it reveals strong bullish sentiment among
traders, and, as such may serve as a contrarian warning. The chart link below shows how the shorter
term p / c ratio since early 2016 has been in a persistent downtrend as the market has trended
sharply higher. Traders were way too bearish late in 2015 and early in 2016, and now have become
very nearly too bullish. This, as traders have positioned for a hoped for year end 'Santa' rally.

$CPCE Weekly

Thursday, December 21, 2017

Long Treasury Bond

The long T-bond will be very interesting to watch as 2018 unfolds. With inflation running down
around 2%, the bond has given up almost all of its long run 300 basis point premium to average
of the inflation rate. Bond investors have also remained skeptical that US real economic growth
will accelerate markedly enough to create sufficient pressure on extant economic slack to push
the inflation rate above the 2% average for any appreciable period of time.

The long guy has moved up from its all time low yield of 2.1% to as high as 3.2% since 2016,
before settling down to the 2.8+% level recently. Doubtless, rising short rates over the past 12-15
months have exerted upward pressure on yields, but the rise in the long bond yield % has been
very stubborn. My bond yield directional indicator has pointed to higher yield levels but it too
has cooled off recently as US production growth has remained modest and sensitive materials
prices have flattened out after rising appreciably from early 2016 through early 2017.

So far, the bond players have not grown apprehensive that the Trump / GOP tax cut plan is going
to do much to push up either growth or inflation. Moreover, there is as yet little worry that the
combination of Fed quantitative tightening (selling Treasuries and agencies) and a larger budget
deficit resulting from the tax cut plan will create sufficient supply to put extra premium in the
bond yield. Plainly the bond market is playing like they are from Missouri: Show Us!

Long Treasury Yield %

Saturday, December 16, 2017

Short Term Interest Rates

Well, I have dusted off the short rates file now that the Fed has started moving off the ZIRP
policy. Since the economic recovery began in 2009, the inflation rate has averaged about 2%
per year. My super long term short rate model suggests that the 91day T-bill should have
averaged about 2 - 2.5% over this interval. Obviously the Fed, deeply concerned about nursing
the Us economy back to life and on to a more stable footing, allowed the 'Bill' yield, or risk-
free rate, to hover near zero over most of this period. The T-bill has risen up to around 1.3%
recently, so we remain in an easy money mode when compared to inflation. You can see the
same thing by comparing the low bill yield to total business sales of around 6% measured y/y.
It is interesting to note that my cyclical rate direction model only signaled that short rates should
be rising only twice over the entire 2009 - 17 period. the first time was as 2014 progressed and second time was as 2017 unfolded. It has even been a stretch this year as business shorter term
credit demand has been increasing only modestly. The long term approaches I use show that
the Fed has indeed been very easy with money but not recklessly so.

Investor expectations for the direction of short rates next year and in 2019 reveal modest projections
of higher short rates and are based on the assumption the Fed will continue to move to restore
normality to the interest rate structure on a gradual basis. It is wise to expect short rates to keep
on an upward track through 2019 provided the economy continues to expand and the inflation rates
strengthens further .

Since there is light pressure when one compares short term credit demand against the supply of
loanable funds, economic momentum and the inflation trend will be the key fundamentals going
forward. Naturally, as Mr. Powell eases into his role as the new Fed chair, markets players will
take careful note of whether changes in the Fed's approach evolve.

3M T-bill Yield



Saturday, December 09, 2017

Bitcoin Goes Parabolic

Bitcoin is the most prominent of the growing list of crypto-currencies. When I first encountered
it in 2008, its foundations were shrouded in mystery, but I think it was intended as an alternative
to fiat currency which had features that suggested that, unlike fiat currency, it was designed as
an inflation hedge which could maintain its value. As such, it should hold its value over
time when adjusted for the inflation rate. With inflation low and relatively stable in recent years,
the original concept suggested that Bitcoin's price should appreciate rather modestly. However,
it has become a plaything for wealthy individual traders and investors. Now that it has become
a high flyer, Wall Street has taken an interest and and a futures market is about to be rolled out.

It may well be, that over the long term, crypto-currency may occupy a spot along with PMs
such as gold in the inflation hedge play category. At the moment, however, it is in a parabolic
price formation and that kind of price curve rarely works out for those who come in long as
the move completes. It is tough to measure parabolic price action with accuracy, but the
Bitcoin curve looks like it may be in a terminal phase, at least for the short run.  CBTC Weekly


Friday, December 01, 2017

SPX In Longer Term Perspective

Looking back nearly 25 years, it has been an impressive period for the SPX. Net per share has
compounded at 6.6% annually which is a bit above the very long term average. However, the
SPX itself has grown at 7.8% as the p/e ratio has tilted higher in recent years, reflecting not
only low interest rates and inflation, but high confidence the longer run future will bring more
attractive performance.

The market is trading above the upper band of longer term ranges starting in the early 1930s,
again reflecting rising earnings and elevated p/e ratios. Noteworthy also is that earnings are
not yet enough extended to signify a top in cyclical economic performance.

The accompanying SPX chart makes clear the dramatic recent power of the market. SPX Monthly
Measures of longer term price momentum are running as strong as they have in over a quarter of
a century and the near term reveals no indications of decay as of yet.

When the market topped the previous historic highs during 2013, it signaled the onset of a new
bull market and not just a quantum cyclical bounce off the 2009 cyclical low. However, from
a practical technical point of view, the evidence would suggest the SPX should not do much
better than at present in the near term without some degree of negative price adjustment. The
'now' should be interesting because the boyz are hoping for a nice Santa Claus rally to wrap up
the year.