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Fed’s Achilles Heel & Margin Debt Monstrosity

Daily Chart Uly 14 InvestWithAlex

7/14/2015 – A positive day with the Dow Jones up 72 points (+0.42%) and the Nasdaq up 33 points (0.66%). 

The stock market continues to perform as per our forecast to subscribers. A massive and rather rapid stock market decline is coming later on this year. And while we won’t have a crash, considering the amount of margin debt out there, quite a few people will get wiped out. If you would like to find out exactly when this move will develop, to the day, please Click Here. 

As of today, the FED is facing the following set up.

  • Massive stock market, bond market and other asset bubbles.
  • Slowing economy and collapsing macro data. We are a stone throws away from an “official” recession. I can argue we are already in one.
  • Zero interest rates and limited options to stimulate the economy further.

As a result, the FED has only two options.

  1. Raise interest rates NOW in order to reload their recession fighting toolkit before the next recession hits. Again, we are nearly there.
  2. Cancel rate hikes and eventually introduce QE4 to further “stimulate” the economy. Also known as, maintaining financial market stability. This scenario includes postponing interest rate hikes until we are in a recession.

You don’t have to be a genius to figure out which scenario the stock market is betting on. And while it would be prudent for the FED to reload now, in reality, no one really knows what they will do. I don’t think they know. 

At the same time, it is a no win situation for the FED. There is no guarantee that the stock market won’t crater even if the FED introduces another round of QE while cancelling interest rate hikes. And I am not the only person who thinks that way.

While most are focused on the risks around a withdrawal of liquidity, we believe the biggest hit to confidence could be the opposite: if another round of US QE is necessary to prop up the economy. While the market could have a knee-jerk rally on an indication of forthcoming stimulus, we think this would likely be short-lived and could end in the red. QE fatigue is already evident: each subsequent round of QE has seen diminishing risk rallies.

Bingo. That’s how complex today’s macro economic setup is. We are at the end of this massive credit expansion cycle and there is nothing that can save this market now. Not even another round of QE. Well, unless the FED goes into a full monetization drive. But that’s entirely another matter.

Now, to margin debt. A few weeks ago I displayed this chart of skyrocketing margin debt and why it is yet another bearish indicator. That is to say, most investors are extremely bullish at the precise moment when they shouldn’t be.

Margin Debt Investwithalex

Not everyone agrees with my assessment above. Traders are borrowing tons of money to bet on stocks … and it’s just not a big deal

“Margin debt does not, by any statistical measure, lead equity prices. They are, essentially by definition, coincident. As stock prices move higher, outstanding margin debt does as well. If and when stock prices move lower, margin debt will follow.”

While I would have to agree with the statement above, they are looking at the wrong metric. It’s not the fact that margin debt moves in tandem with the stock market, it is the fact this metric is now 33% higher than at 2000 and 2007 tops. All while the stock market hasn’t gone anywhere over the last 12 months (NYSE). In other words, the market is storing a tremendous amount of fuel for a correction. And given how much margin debt is out there, any such correction can very quickly turn into a violent sell-off.

Further, I would have to agree with the following sentiment. The stock market is becoming a ‘lose-lose’ situation

Investors are in the grip of “Stockholm syndrome” because there is a trust that central bankers don’t want to hurt markets, which more or less forces investors to maintain a “risk-on” positioning, buying things like stocks and lower-rated bonds.

I couldn’t agree more. I continue to maintain that this is the worst trade out there today. The problem is, everyone is in it. By the time most investors realize the FED is not in control and cannot backstop the market, it will be too late. At least 50% of the down move will be over by that point. Oh well….

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. July 14th, 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Fed’s Achilles Heel & Margin Debt Monstrosity Google

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Am I Wrong About This Market Being Overvalued?

PE Ratio

I have displayed the chart above on quite a few occasions before. It is an easy way to illustrate just how overvalued we are today. Consider this. The chart above suggests that the stock market has been more expensive on only two other occasions. Right before the 1929 crash and in 2000. We are now above 2007 overvaluation bubble levels.

Further, the S&P would have to fall over 50% from today’s levels just to revert back to its mean. And we are not even talking about overshooting to the downside.

With that in mind, this articles brings today’s “Overvaluation Premise” into question.

Are Grantham And Hussman Correct About S&P 500 Valuations?

To save you time, the author uses accounting tricks and today’s environment to bring up Shiller’s P/E ratio mean from 16.6 to today’s 27. Justifying today’s valuation levels in the process.

That is to say, the author uses “This Time Is Different” premise to make his argument.

Is it? 

It never is. Listen, you can argue all of sort of things through the use of mathematics and statistics. For instance, you can even argue that most of the stocks today deserve infinite valuations because interest rates are at zero.

Plus, I can’t tell you how many times I have heard the same argument and its application to the housing and stock valuations right before the 2007 top. At the end of the day, you have to decide who is right here. This time is different or over 200 years of financial data. I will leave that decision up to you.

Z31

Am I Wrong About This Market Being Overvalued?   Google

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Did Blackstone Just Ring The Bell At The Real Estate Bounce Top?

credit_bubble_machine

I think so. I have asked this question over a year ago….What Happens When Blackstone Starts Dumping Real Estate At Market?

It appears we are about to find out as Blackstone is starting to liquidate their Real Estate portfolio. Blackstone Selling 1,300 Atlanta Houses in Strategy Shift

“It’s that stage in our lives where we’re now in a position of looking at dispositions as an active part of portfolio balance,” Bartling said in an interview. “You should expect us to sell 5 percent of our portfolio every year.”

Is Blackstone beginning to see the same thing that I have predicted here over 2 years ago? Particularly, the fact that this real estate bubble 2.0 (dead cat bounce) is coming to a conclusion?

I believe so. Blackstone went from acquiring properties like crazy between 2010-2013, to cutting their acquisitions last year by 70-90% to now selling large chunks of their portfolio. I don’t think they would be doing that in a red hot market that offers value. I think its safe to say that the bounce is over and that the real estate market is rolling over into a 3rd leg down. I believe Blackstone is beginning to realize that as well.

What happens next?

Easy. The real estate market might hover here for some time. Not too long thought. As soon as a bear market hits and the US falls back into a severe recession, you will see housing going down once again. Once investors realize where we are in the real estate cyclical composition (dead cat bounce and not expansion) you will see the likes of Blackstone and foreign investors trying to get rid of their properties at a much faster pace. With investors heading for the doors, mass volume of real estate should hit the market. Collapsing existing values just as fast, if not faster, than their initial ascend between 2010-2014.

Good luck selling your 48,000 rental properties Blackstone. 

Z30

Did Blackstone Just Ring The Bell At The Real Estate Bounce Top?  Google

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The Stupidest Economic Analysis Yet

Daily Chart Uly 13 InvestWithAlex

7/13/2015 – Another up day with the Dow Jones up 217 points (+1.22%) and the Nasdaq up 74 points (+1.48%)

Alright, since Greece has been sacrificed for the benefit of the EU, at least for the time being, can we now concentrate on something that really matters. For instance, Q-2 earnings. And while the mainstream financial media is cheering our return to break even point for the year, here is the stupidest reason yet as to why the US Economy/markets will outperform.

So, let me get this straight. The fact that we are in a massive overvaluation bubble, by almost any measure, is irrelevant. The fact that corporate buybacks and QE velocity is collapsing,  doesn’t really matter. The fact that government officials throughout the world are doing extreme things in order to prop up their respective financial markets, is immaterial.

It is the American worker and their “know-how or resilience” that will save us all and propel our financial markets higher.  Crazy!!! That is to say, it might be time to reconsider your relationship with LPL Financial (if you have one). On the flip side….

I don’t know, it is playing out pretty well over the last few days. The primary question is, is this just a bounce or is the market getting ready for another leg higher.

Longer-term, the article is right on the money. “Buying the dip” hasn’t really paid off in over a year now. Unless you are buying right at the bottom and selling right at the top. Plus, we haven’t had a proper bottom since about October of 2014.

Why?

I continue to maintain my view that the stock market is compressing and/or accumulating energy. Once this energy is released we should see very fast moving markets. Something we haven’t seen in quite a few months. In other words, at some point in the future “buy the dip” mentality might backfire big time. I also believe this time is fast approaching.

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. July 13th, 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

The Stupidest Economic Analysis Yet  Google

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It’s A Cold Day In Hell……

angry larry summers

….when I have to agree with Larry Summers, but he is right on the money here. China playing dangerous stock market game: Summers

Comparing the Greece debt drama and the recent meltdown in the Chinese stock market, the situation in China represents a “greater source of financial risk to the world.

I thought the strategy of manipulating the market upwards that the Chinese were pursuing was quite a dangerous one…….

The problem is, everyone is playing the same game. The EU with their debt problem and Greece and the FED with the US stock market/economy. Although, in more subtle way when compared with the Chinese.

Understand something very important. At this juncture it is a confidence game. As soon as investors lose confidence in either the Chinese government or the FED or the EU clowns, it will all come crashing down. And fast. The only question is…..WHEN? Click Here to find that out.

z32

It’s A Cold Day In Hell…… Google

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COT Reports & Weekly Market Calendar – July 11th, 2015

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 JULY 7th, 2015

Currencies: 

  • USD:  2K Long Vs. 69K Short – Significant short interest remains. No major changes.
  • Canadian Dollar: 36K Long Vs. 2K Short – Canadian Dollar short position has vanished. Commercials are now net long.
  • British Pound: 45K Long Vs. 27K Short – Substantial increase in commercial net short position. More neutral now.
  • Japanese Yen: 135K Long Vs. 33K Short – Net increase in short interest. Yet, a large long position in Yen remains.
  • Euro: 135K Long Vs. 11K Short – Significant long position remains. No change.
  • Australian Dollar: 94K Long Vs. 1K Short- Significant long position. Slight increase in long position

Conclusion: Based on the information above, commercial interests expect the US Dollar to decline while Canadian Dollar, Euro, Yen and Australian Dollar rally. 

Markets/Commodities/Volatility: 

  • E-Mini S&P 500: 246K Long Vs. 506K Short – Marginal increase in net short exposure. A substantial short position remains.
  • VIX: 70K Long Vs. 27K Short – Slight decrease in net long exposure. Still, a heavily long position suggests market turbulence ahead.
  • Gold: 80K Long Vs. 78K Short – No change. Still neutral.

Conclusion: Based on the information above, commercial interests expect the stock market to decline as volatility surges higher. Gold is likely to remain within its trading range. 

Next Week’s Market Calendar: 

  • Q-2 Earnings.
  • July 14th – Retail Sales
  • July 16th – Fed’s Yellen Testimony
  • July 17th – Consumer Price Index

z33

COT Reports & Weekly Market Calendar – July 11th, 2015 Google

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The Biggest Fallacy In Today’s Stock Market

Daily Chart Uly 10 InvestWithAlex

7/10/2015 – A positive day with the Dow Jones up 211 points (+1.20%) and the Nasdaq up 75 points (+1.53%). 

Most market participants, bulls and bears, will walk away from this week’s market action confused. Not my subscribers. The stock market continues to perform within the confines of our exact forecast. If you would like to find out what happens next,  please Click Here. 

So, what is the biggest fallacy in today’s stock market?

Illusion of stability and/or trust in all things “Government” (FED/ECB/IMF/EU,China, etc..). Consider the following.

Maintaining The Illusion Of Stability Now Requires Ever-Greater Extremes

Right on the mark. It appears we live in an environment where the people in power are attempting to create a one way street to prosperity. Through zero interest rates, QE, stimulus, stock market intervention, etc… What the idiots don’t understand is that they end up creating bubbles of immense proportions. Bubbles that just 10-15 years ago would have been unfathomable.

The downside is, the bigger they are the louder they pop. Make no mistake, we are getting there…… and soon.

Mohamed A. El-Erian: Don’t think China is investable

I couldn’t agree more. At least for now, China is bouncing. Just as was suggested here earlier in the week. Yet, desperate the measures taken by the Chinese Government, it is a clear sign not to touch China with a 10 foot pole. When authorities prevent people from selling while jailing short-sellers, you know it is a dire situation.

Don’t get me wrong.  As I indicated earlier in the week, China might go though a massive bounce here. Maybe even a higher high. That is speculation, not investing. When government steps in like this, the end is near and you don’t want to be there. Plus, if you can’t get out when you need to, there is no point in getting in.

Russia poses ‘greatest threat’ to US national security: Dunford

Excuse my language, but I am getting really sick and tired of this Industrial Military Complex propaganda BS. What threat? How can Russia pose a threat if it is the US who is building a massive NATO presence on the Russian border. Not the other way around. If we don’t count Alaska, I think the closest Russian military outpost is 4000 miles away from the mainland. How many more f$*#ing wars will the idiots in Washington get us into before ICBMs start criss crossing the oceans?

Short Sales Are at Their Highest Level Since the Financial Crisis

I don’t think this has anything to do with short-term moves. I think this is a more structural or longer-term position. Typically, short sellers are on the “smart side” of the money. Here is what they are seeing…..

  • Artificially propped up markets.
  • Government interventions (they never last).
  • Massive bubbles in all asset classes.
  • The stock market at the third highest valuation ever. Right behind 1929 and 2000.
  •  Overwhelming bullish sentiment…
  • Etc….

This is exactly what I am talking about in terms of “fallacy”. What you are witnessing right now is the calm before the storm. Once investors realize that the FED is not in control, you will see a rather rapid correction of 25-40%. Understandably, by the time most people realize this, it will be too late.

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. July 10th, 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

The Biggest Fallacy In Today’s Stock Market  Google

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It’s Hard To Be A Bear When Everyone Is Bullish. Part 8

sell high go short

Explanation: Being a bear while everyone else is bullish is one of the most challenging propositions in investing. For instance, ‘Short selling is an incredibly lonely proposition,’ billionaire hedge fund manager Bill Ackman says.  Yet, it can pay off big time if you get your TIMING right. However, since most people, even professional investors are terrified of shorting, I will introduce a quick series about short selling, proper risk management when short selling and the best way to maximize returns. This was to be a part of my never finished book (no time to finish it)…….

Part 7

Rule #3: Cover Your Short Positions & Go Long When Technical and Timing Indicators Confirm (Trading) 

The rules found here are the exact opposites of Rule #2.

  • Always be ready to cover your short positions and go long if technical indicators associated with the underlying securities suggest that stock prices are about to break out. No matter how bleak the underlying fundamentals are at the time.
  • Always be ready to cover your short positions and go long at bear market or correction bottoms. No matter what you believe will happen to the overall economy in the meantime.
  • Always be ready to cover your short positions and go long when the underlying stock prices have experienced massive drops and could now be considered oversold or selling well below their intrinsic value. This rule applies to all market conditions. Bull and bear.
  • Always keep detailed technical charts, long-term and short-term, for all of your stocks and the overall market. These charts will tell you when stock prices are about to break out.
  • Cover your short positions and go long as soon as daily, weekly or monthly trends change from bear to bull. Typically, the exact exit points will be based on your overall trading strategy and risk profile.
  • Go long at the same time and price.

As you can very well imagine the rules above will complete the transaction and bring us back a full circle. First, they will help us with identifying market or stock specific bottoms. Giving us the ability to come in and assume long positions at giveaway prices. Second, these same rules will help us find stocks that are about to surge much higher and in many cases at X multiple to the market.  Giving us a fighting chance to walk away with massive gains. Finally, the rules above force us to change course at exactly the right price and time. Removing all of the emotional aspects associated with investing out of the picture.

Here is another way to look at proposed Rules #1-3. They create a full circle of sorts. A circle that allows you to take an initial position at or near the bottom and ride what should be a massive rally all the way up into its eventual overvaluation bubble. Only to exist and go short as the stock price begins to collapse. In other words, this setup allows you to profit on both sides of the move.  All while maximizing returns and minimizing risk in the process.  The best part is; your initial entry point on this cycle can be at any point. For as long as you understand exactly where on this proverbial circle you are coming in.

Rule #4: Know Exactly Where You Are At All Times.

By default, you should know exactly where you are at all times. Although that may not be as easy as you might imagine, particularly, if you are new to the whole process.

More or less, the composition of all stock moves can be divided into four distinct parts.

  1. Bottom formation (accumulation or trauma).
  2. Bull market.
  3. Top formation (distribution or blow off).
  4. Bear market.

Now, the composition above gets fairly complicated once we begin to add multiple time frames and structural patterns to the underlying moves.

For instance, the overall stock market might be in a 10 year bull market, yet it is about to suffer though a massive 50% correction. Or we might be in a 17 year secular bear market, yet the overall stock market might be ready to stage a massive multi-year rally. Just as it did from both 2002 and 2009 bottoms.  Further complicating the matter are the different size cycles developing in the market at any one time.  Ranging in duration from hourly to decade long. In fact, it is their eventual combination (long and short cycles) that causes the final stock market composite we see on a daily chart.

Is there a way to tell exactly where we are in the overall composition?

Yes, there is. Unfortunately, such a method cannot be described in any reasonable manner, let alone in this short book.  It can only come through years of experience and a tremendous amount of work.   Particularly, when the above analysis is applied to individual stocks.  Not to tout my market timing service, but you might want to take a look at the subscriber section of my website if this type of an analysis is of interest to you.

For the purposes of this book, we can apply the following tools or shortcuts.

To be continued……

Z31

It’s Hard To Be A Bear When Everyone Is Bullish. Part 8 Google