Financial topics

[tim]

Overnight Markets and News

Mar E-mini S&Ps (ESH18 +0.05%) this morning are up +0.05% at a new record nearest-futures high as U.S. stock indexes continue their rally to fresh record highs on expectations for strong Q4 quarterly corporate earnings.

In response to the tax cuts which favored US corporations (and their earnings) over the US middle and lower classes, I didn't hear anybody say that needed to be done to better prepare for war, but that is probably the grim reality. Go Amazon.

Last time, it was General Motors that turned around overnight and won the war. Who will it be this time?

What I was wondering, what would have happened if you invested in General Motors and held through the market crash of 1929?

That's what I was asking earlier. Invest in Toyota, the most American made car? Maybe Toyota will be producing for the U.S. war machine.

Sounds crazy to just about anyone else I talk to.

[Higgenbotham]

https://www.bloomberg.com/news/videos/2 ... othy-video

Investor sentiment is getting frothy. Their proprietary "Euphoria Model" says there is a greater than 70% chance the market will be lower in 12 months. A continuing 10-20% rally in the market is "deeply unlikely". On the earnings front, the market has priced in tax reform benefits but some of those benefits may be "competed away". All the good news has been priced in on the tax benefits. It may be that earnings are good, but they're not good enough relative to these rising expectations.

I've been thinking roughly the same thing. I started getting short at the close today (the first time since August).

[Higgenbotham]

https://finance.yahoo.com/blogs/daily-t ... 10694.html

I find this article from 2014 very interesting. The article basically says Shiller was calling the market overvalued in 2014 on a 10 year basis based on CAPE.

At a recent Citigroup press briefing, I asked Levkovich about what his rate-adjusted CAPE predicts for stocks 10-years hence, which is the “real” takeaway of Shiller’s cyclically adjusted P/E. His answer, essentially, is that “nobody really invests with a 10-year time horizon anymore,” at least not professional investors who risk losing investors if they underperform for an extended period. In other words, while Shiller may be right about valuations predicting poor long-term results for stocks from current valuation levels, institutional investors can’t afford to think much beyond the next 6-to-12 months, which Levkovich’s work shows should bring continued upside for stocks.

This would mean that the S&P 500 was overvalued on a 10 year basis at 1600 in 2014 (currently near 2800). But nobody cared that the market was overvalued on a long term basis in 2014 because nobody takes a long term view when investing.

Back around 2009, I talked about a "deflationary jolt". Probably the market was long term overvalued at that time with the S&P at 1100. Surely there is potential for a massive deflationary jolt, or as the guys from Goldman stated to Michael Lewis a "flash crash times ten".

It is worth noting however that on page 234 of Flash Boys, Michael Lewis cites Ron Morgan and Brian Levine, Goldman Partners and co-heads of Goldman's global stock markets, who said that "Unless there are some changes, there's going to be a massive crash, a flash crash times ten."

[aeden]

Treasury Bonds _ With monetary restraint continuing to weigh on economic growth for the remainder of 2017 and 2018, inflation, which receded sharply this year (PCE is up 1.2% year-to-date and 1.4% year-over-year), will continue on a downward path. Coupled with extreme over-indebtedness, these
https://dev.advisorperspectives.com/com ... arter-2017
factors are the dominant factors causing both cyclical and secular growth to weaken.

H the point is grinding lower and slower if I understand your position correctly.

https://fred.stlouisfed.org/series/M2V

The private sectors do not need or want the public analysts. It will confuse more people than the hunter seeker algos we discussed.

Wed May 11, 2016 4:14 pm
“It is amazing how much you can accomplish when it doesn't matter who gets the credit.” Harry S Truman and On Ronald Reagan desk in office.
I will admonish you to check the notes from higg on that.

As we know around here, we cover a lot of ground here.
This was are around Fri Feb 01, 2013 8:25 pm notes observations and you know its homework for even subtle points from the trenches.

H noted the breakdowns also and mentioned with data effects we are seeing unfold since reg t and q on the over night lockups
and 40 milliseconds bear raids. This conversation included kicking the bee hive and we know who's foot that was.
Since ronnie raygun and the nature of it from the chart you mentioned.

The savy investors are castigated as digital dickweeds and we have the exact time stamp of it also....

More debt and less savings is the neo fuedal model the consumer in the states are following blindly.
Just as the Christians sold children for the adjusted price of forty eight cents after the innovations
where extracted from the processes recorded even around the time of the Bishops Bible time frame.

https://www.youtube.com/watch?v=WvnMGgmaqtc
https://www.zerohedge.com/news/2018-01- ... g-division

Read carefully Hosea’s description of God’s feelings toward those who have covenanted with Him and then betrayed the trust.
Examine your own life for experiences seen that will fathom Hosea’s message.
He was a native of Israel and followed Amos.

My people are destroyed for lack of knowledge: because thou hast rejected knowledge, I will also reject thee, that thou shalt be no priest to me: seeing thou hast forgotten the law of thy God, I will also forget thy children.

I will not punish your daughters when they commit whoredom, nor your spouses when they commit adultery: for themselves are separated with whores, and they sacrifice with harlots: therefore the people that doth not understand shall fall.

https://www.youtube.com/watch?v=cOeKidp-iWo
https://www.zerohedge.com/news/2018-01- ... -come-here

The they do not turn the Book of Joel is certain.

[Higgenbotham]

H the point is grinding lower and slower if I understand your position correctly.

Vince referred to Hussman's letter a lot but I would urge everyone to refer to it now and look at the productivity and employment trendlines. He makes the point that the underlying employment plus productivity growth is 1%, for 1% economic growth. He notes that for the past several years, the drop in unemployment has artificially pushed economic growth to 2%.

As I've probably stated in past years, I don't believe an underlying 1% growth rate is sufficient to support a financial industry and a stock market of the type we have today. The stock averages have only existed since 1885. With mean reversion, the economy won't be growing for several years. I think it's possible the financial industry as we know it today could cease to exist in as little as 2 months from whenever the stock market makes its high. What we've seen since 2008 in my opinion is a successful attempt to levitate a system that has no intrinsic worth and therefore a stock market value of zero.

[John]

I just heard Stuart Varney on Fox Business News say delightedly: "This
is history in the making. We are in the explosive phase of the stock
market rally." It's quite possible that he's right that this is
history in the making, though possibly not for the reason he thinks.

[Higgenbotham]

I just heard Stuart Varney on Fox Business News say delightedly: "This
is history in the making. We are in the explosive phase of the stock
market rally." It's quite possible that he's right that this is
history in the making, though possibly not for the reason he thinks.

That would potentially be like somebody exclaiming that the space shuttle Challenger was in the explosive phase of its liftoff right before it blew up.

[Higgenbotham]

I mentioned Vince yesterday and thought about him again today when I decided to buy some puts on the S&P 500 index. Vince mentioned several times on this forum that he was buying puts. The reason I like puts at this time is the VIX has been at record lows and therefore I can buy the puts and have relatively cheap insurance in the event that the "deflationary jolt" that I mentioned several times in 2009 comes to pass this year. What I mean by that (a "deflationary jolt") relative to stocks is you wake up one morning and the stock indexes are down 10 or 20 percent, or maybe even more.

But now the problems are in view and they are more serious than in 2008. I think this crash is going to be like the Goldman executives discussed in Lewis' book - a flash crash times 10. A massive 1000 point crash in the S&P that takes place in minutes.

I think so too. Part of my thinking for buying puts on the S&P. I don't get really long term ones, as they seem too expensive, just less than 6 months. I think when the crash comes it will be really fast so the short term can work. Maybe not 1000 points in minutes, but in a week or month seems very possible. Except for my currently alive S&P options, all my previous ones expired worthless. It has been like an insurance policy costing me money every 6 months or so. But if it pays off it could pay off big. I do worry a bit though that the options market might even fail.

This quote is from about 2 years ago.

[Higgenbotham]

Personally I think we can see 50% come off the stock indexes in 2-4 days.

From the 1929 and 1987 tops it took about 2 months for the stock indexes to fall 50%. I believe it can happen an order of magnitude faster this time.

[John]

> Personally I think we can see 50% come off the stock indexes in
> 2-4 days.

> From the 1929 and 1987 tops it took about 2 months for the stock
> indexes to fall 50%. I believe it can happen an order of
> magnitude faster this time.

I'm not so sure. I would expect a "flash crash" of some kind, maybe
20%, with a quick recovery, followed by a long-term crash, as happened
in 1929.