Category: Invest with Alex

6/10/2016 – A negative day with the Dow Jones down 118 points (-0.66%) and the Nasdaq down 64 points (-1.29%) 

The Dow closed today just about where it was on April 1^st and well below its lower top achieved on April 20^th at 18,168. But you wouldn’t even consider this tight trading range if you have been following mainstream financial media. According to them, new all time highs and a massive breakout rally are just around the corner.

Perhaps.

Here is what’s troubling about all of this. While CNBC’s talking heads continue on with their perpetual pom pom waving exercise, some of the best investors of our time went on to increase their already massive short positions. Icahn, Soros, Rogers, Druckenmiller, etc…..   I wrote about this before Icahn, Soros, Rogers, Faber, Druckenmiller All Warned…..No One Paid Attention

Let’s take a look at the latest.

• Soros: WSJ A Bearish George Soros Is Trading Again 

Worried about the outlook for the global economy and concerned that large market shifts may be at hand, the billionaire hedge-fund founder and philanthropist recently directed a series of big, bearish investments, according to people close to the matter.

• Icahn: Soros has points with bearish bets; stocks falsely being propped up

“I don’t think you can have near zero interest rates for much longer without having these bubbles explode on you,” Icahn did say. “You also need fiscal stimulus from Congress”

• Gross: Negative rates are like ‘supernova’ that will explode

“Global yields lowest in 500 years of recorded history,” Gross, 72, wrote Thursday on the Janus Capital Group Inc. Twitter site. “$10 trillion of neg. rate bonds. This is a supernova that will explode one day.”

• Rogers: Jim Rogers’s Shocking Interview

If you participate in financial markets the interview below is a MUST watch. Not only does Jim Rogers talks about a ton of outstanding investment ideas, what the future holds, politics and macroeconomic data, for the first time he acknowledges that war will be the likely outcome of today’s macroeconomic/financial imbalances.

• For God’s sake, even Goldman Sachs is bearish: There’s an elevated risk of a big market selloff

“With the S&P 500 close to all-time highs, stretched valuations and a lack of growth, drawdown risk appears elevated.”

Now, here a billion dollar question. Can all of the above be interpreted as bullish?

At least one man thinks so. Tom Lee: The best investment decisions are characterized by 1 word

One of the lessons I learned over the past 24 years as a research analyst (first job was Kidder Peabody), is the best investment decisions are ‘uncomfortable,‘” Lee said in a note to clients on Friday.

And there is you have it ladies and gentlemen. You can follow the likes of Soros, Icahn, Gross, Rogers, Druckenmiller –OR- you can stand alongside Mr. Lee. An analyst who believes the market will rally. Pushing 10%+ higher by the end of the year because most investors might be “uncomfortable” in going long here.

The choice, as always, is yours.  Invest accordingly.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. June 10th, 2016  InvestWithAlex.com

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COT Reports: If you are not familiar, the Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions. In other words, it gives us a preview of what commercial interests are buying or selling. As the theory goes, we want to be on the same side of the trade as the big guys.

While not a good timing tool, currencies, commodities and the stock market (to a lesser extent) tend to move in the direction of the bets made by the commercial players. Not always, but often enough.

Latest data, as of June 7th, 2016

Currencies: 

• USD:  1K Long Vs. 25K Short – No changes. Substantial short interest remains.
• Canadian Dollar: 5K Long Vs. 67K Short – Significant short interest.
• British Pound: 150K Long Vs. 42K Short – No changes. British pound remains bullish.
• Japanese Yen: 16K Long Vs. 27K Short – Neutral.
• Euro: 74K Long Vs. 33K Short – Euro remain bullish.
• Australian Dollar: 42K Long Vs. 17K Short – Bullish.

Conclusion: Based on the information above, commercial interests expect the US and Canadian Dollars to decline while British Pound, Australian Dollar and Euro to rally. Japanese Yen remains neutral. 

Markets/Commodities/Volatility: 

• E-Mini S&P 500: 443K Long Vs. 336K Short – Net neutral position remains.
• Nasdaq 100-Mini: 27K Long Vs. 72K Short – Small net short position.
• VIX: 153K Long Vs. 15K Short –  Record net long VIX position. VIX is at extreme bullish levels. That is net bearish for the market.
• Gold: 41 Long Vs. 181K Short – Large net short position against the gold.

Conclusion: Based on the information above, commercial interests are now net neutral the S&P. Short the Nasdaq and gold, long the volatility. It is important to note a record breaking net long position in VIX. 

Next Week’s Market Calendar: 

• June 14th: Retail Sales
• June 15th: Fed Interest Rate Decision 

COT Reports & Weekly Market Calendar – June 10th, 2016 Googles

The problem is, no one really knows.

The chart above is truly jaw dropping. I have written about China quite a few times last year. For instance, Is China About To Collapse – Drag Us All Down

Recently, there has been quite a bit of news that China’s credit bubble might be much bigger than anyone believes. That shouldn’t come as a surprise to the readers of this blog.

• Billionaire Kyle Bass is Betting on a China Collapse
• Chart shows China’s debt bubble bigger than subprime bubble
• China’s Corporate Bonds Too Murky for Many Investors

Hedge fund manager Kyle Bass has a very good take on the same subject matter. A view worth studying.

Over the last ten years, China’s banking system has grown from less than $3 trillion to $34 trillion, equivalent to around 340% of Chinese GDP. To put it in perspective, the US banking system had about $16.5 trillion of assets heading into the financial crisis, equivalent to 100% of US GDP. “Credit has never grown faster or larger than it has in China over the past decade,” Bass wrote in a letter to investors dated February 10. There is no precedent.

He goes on to say….

What does this mean for Chinese banks? There is a bad answer and a worse answer. The bad answer is that Chinese bank capital – the equity buffer – is significantly overstated. A TBR requires much less capital to be set aside (only 2.5c as opposed to 11c for an on-balance sheet loan) at the time of origination (anyone thinking Fannie and Freddie?). Adjusting reported bank capital ratios for this effect changes reasonable 8-9% Core Tier 1 capital ratios (CT1) to undercapitalized 5-6% levels. Now, the worse news. TBRs are one of the biggest ticking time bombs in the Chinese banking system because they have been used to hide loan losses.

Finally…..

“One can make many assumptions regarding the collectability of such loans, but our takeaway is that the system is already full of massive losses,” he said. WMPs, TBRs, and the 8,000+ credit guaranty companies constitute the majority of China’s shadow banking system. This system has grown 600% in the last 3 years alone. This is where the first credit problems are emerging, away from the eyes of regulators. The Chinese government has the capacity and the willingness to do what it needs to do to prevent a banking system collapse. China will save its banks, and the renminbi will be the valve for normalization. It is what any and every government would do if put into a similar situation. China should stop listening to Kuroda, Lagarde, Stiglitz, and Lew and start thinking about how to save itself from the impending disaster in its banking system.

What does all of that mean? 

China only has two options. An outright banking and economic blowup/collapse or substantial Yuan devaluation. Invest accordingly.

As the US Presidential race heats up, it could be worse.

Philippine’s president-elect Rodrigo Duterte is now offering big cash awards for vigilante style killings of drug lords, rapists and other criminals. If you are wondering, killing a drug lord would net you about $100,000, but not a small time distributor. That offer stands at only $42,000. So, grab your AR-15 and book a flight to Manila. Duterte raises bounty for killing drug lords to P5 Million

Not to be outdone by a small Island nation, in whatever category it might be, the US Presidential candidates might want to step up their game. Either way, it will be a fascinating election season to watch. Get your popcorn ready.