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Stock Market Update, November 22, 2013

daily chart Nov 22, 2013

Summary: Continue to maintain a LONG/HOLD position. 

Once again, no change since the last market update to alter my opinion. The market continues to push through it’s daily highs as it marches forward.  My previous updates remain right on the money. Please click on the links below to see them. 

November 15th Report. 

November 8th Report.

November 1st Report.

As we continue to hold our long position while waiting for the market reversal, right now might be a good time to start thinking about how you would liquidate your holding and/or re-allocate your capital once the bear market of 2014-2017 starts. If you would like to take it one step further, this is a good time to start researching SHORT opportunities.  

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Stock Market Update, November 22, 201

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Warning: The Biggest Market Story No One Is Talking About

 

 

10 year November

Everyone is running their mouth. Bernanke is talking about indefinite QE, Yellen is saying that she will accommodate the markets any way that she can and Larry Summers is talking about 0% interest rates to avoid economic depression. All of that is garbage. 

The only thing that truly matter is the 10-Year Note chart above. As you can see the chart is extremely bullish. I have said numerous times here, it is fatal to believe that the FED’s can control interest rates. They can influence them over the short term, but interest rates will behave as they should over the long run. The chart above clearly indicates that interest rates have reversed their course and are climbing up. Given massive amount of leverage  and speculation in the system, even a misery 0.5% increase from this point on will have huge negative consequences. Should interest rates zoom up within a short period of time (which they might) there will be hell to pay.

This is the most important trend to watch going forward. So far the trend is incredibly bullish (for interest rates). This plays very well into my forecast of the bear market starting in 2014. This confirms it. 

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Stunning Obama Admission. US Economic Depression Is Coming

Huffington Post Writes: Larry Summers’ Desperate Depression-Fighting Idea May Soon Be Reality

Learning From History

If you think people who save money are being punished by low interest rates, wait until they have to deal with negative interest rates.

Slashing rates well below zero to make it painful not to spend money is the desperate approach to avoiding an economic depression recently endorsed by Larry Summers, President Obama’s former top economic advisor and one-time pick to run the Federal Reserve. With economic growth likely to be weak for the next infinity, the job market stubbornly awful and inflation disappearing, central bankers around the world have been toying with the idea for a while. Every day it gets closer to being a reality.

Read The Rest Of The Article Here.

Well, there you have it.

First, why are they talking about a depression?  If you listen to Bernanke, Yellen and/or Obama you would believe things are great and getting better. Unemployment is down, economy is up, stock markets are surging, etc….   What the hell do they mean by “desperate approach to avoiding an economic depression.”  Is Larry Summers on drugs?

Maybe the FED’s are not as stupid as I make them out to be.  If that is true, that makes them liars and criminals, committing economic crimes against the American people. Technically speaking that is exactly what they are doing. Uhmmmm, moving on before I get a call from NSA……

Listen, they know what they did and they know what is coming. The only way to combat that is to continue pumping a tremendous amount of money into the economy while hoping that interest rates stay low. However, they are running out of options.  Given current economic backdrop there isn’t that much more they can do.  Will bringing interest rates down to zero work ?

The answer is NO. Japan has tried that for 20 years without any success.  All they succeeded at is destroying their economy while trying to stimulate it. Here is the kicker….

Everyone, and I mean everyone believes that the markets behave based on what the FED does. Everyone believes that the FED’s can control and manipulate financial markets at will. That is the biggest and the most dangerous misconception everyone has. It might look that way, but they do not.

Remember 2007-09? Eventually markets will readjust on their own accord. When they do, there will be hell to pay. With or without 0% interest rates. The bear market is coming in 2014. 

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Housing Market…Barbarians At The Gate

Reuters Writes: Home sales fall as prices rise

Contemporary-House-Ideas-Design

WASHINGTON (Reuters) – U.S. home resales fell in October to their lowest since June due to an inventory shortage and high property prices that have dampened buying power.

The National Association of Realtors said on Wednesday that sales of previously owned homes fell 3.2 percent last month to an annual rate of 5.12 million units.

Economists polled by Reuters had expected sales to drop to a 5.13 million unit pace in October.

At the same time, the median price rose 12.8 percent in October from a year ago to $199,500. It was the 11th straight month of double-digit gains, and up from last month.

Real Estate fundamentals continue to deteriorate.  Over a month ago I went out on a limb and called for the real estate market top.  Here is that post and reasoning  I Am Calling For A Real Estate Top Here  Even though the price is still increasing in certain markets (as I have predicted), I continue to stand by my forecast.

So, what is the future of housing? To understand what’s coming we must first understand overall macroeconomic picture.  Most importantly we must understand that….

A. Historically speaking the real estate market is still in a massive bubble driven by cheap credit. There is no reason for housing prices to be at this level. As my earlier valuation work showed a 50% haircut from today’s levels would bring the prices into the “normal range” of where they should be.

B. I know that many people will disagree, but your house is not an investment. It is the place you live. It could be an investment if you view it as a business and generate positive cash flow and ROI from your rental. However, that is next to impossible with today’s market prices.  Essentially buying today (or over the last few years) is a speculation where you bet on asset appreciation Vs. positive cash flow.  That is a huge difference.

C. The stock market and the economy will tank starting in 2014. The bear market leg will go into 2017. My mathematical timing work clearly shows that. It is now unavoidable. In such a case housing will experience its 3rd leg down.  Typically, 3rd legs are much harsher than the first decline. The bottom line is, I wouldn’t be at all surprised to see a 30-50% haircut from today’s prices.

Taking an even longer view, eventually we must get to a point where real estate is not viewed as an investment. Where people feel discussed by the housing market. That will be the bottom. Today we are on the opposite side of that view. 

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Overconfidence Kills

A Word Of Caution

overconfidence investwithalex

It is important that I pause here for a second and caution you that arbitrary use of 3-Dimensional analysis techniques described in this book could be very dangerous. Having learned this the hard way, please allow me to tell you a cautionary tale.

Back in 2006 and after years of looking into this type of analysis I have made a number of significant breakthroughs that led me to believe that I have finally fully cracked the 3-Dimensional analysis and have fully cracked the “stock market code”.  What followed was nothing short of amazing. Over the next 30 trading days I was able to predict the stock market within daily resolution and with 90-95% accuracy. Needless to say I was making a lot of money.

Yet, this same work and the success it brought have led me to an overconfidence level that should not be exhibited by any reasonable investor.  It led to me to make large bets in situations that do not warrant it, all because my mathematical 3-Dimensional work has indicated a certain move in a particular direction. This strategy worked until  one day when my analytical work backfired and led to massive losses in my fund.  Instead of a powerful move to the downside (which my work predicted), there was a powerful move to the upside, wiping out all of my gains and causing large losses in the process.

For the purposes of this book the lesson here is twofold.

First and foremost, do not use these techniques in an arbitrary fashion or with 100% confidence.  Yes, this work can and does predict the market with incredible accuracy, but that accuracy can only be attained after a substantial investment of your time into performing any such 3-Dimensional analysis.  You should never  follow anyone analysis or make use of simple tools or use it just because you saw it in this book without first understanding of WHY you are doing so.  Let me repeat that, until you reach the level of analysis where you clearly understand WHY you are doing something, do not use the tools here in an arbitrary fashion.  

Second,  never be 100% confident in your work. Even if your 3-Dimensional work has advanced substantially and you consistently making exact forecasts, be wary of it.  Always maintain the psychological investor mind frame that your analysis might be wrong. Never bet the farm based on your analysis and never back yourself into a corner. Always use stop losses and always leave room for maneuver, even if you are 100% confident. Remember, you will have plenty of opportunities to make money.              

It is my hope this warning steers you clear of trouble and helps you avoid the mistakes that I have made. Now, back to the stock market analysis. 

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Sorry. Christmas Has Been Officially Cancelled.

Bloomberg Writes: Wal-Mart Touts $98 TV in Weakest Holiday Season Since ’09

drunk santa investwithalex

U.S. retailers are discounting earlier than ever as they brace for the weakest holiday shopping season since 2009. Wal-Mart Stores Inc. is dangling a 32-inch flat-screen TV for $98, down from $148 last year. Sears Holdings Corp. has waived layaway fees and its Kmart chain is introducing a rent-to-own program. More than a dozen retailers are opening earlier, or for the first time, on Thanksgiving Day. Among the attention-grabbing stunts: a $1 million jackpot for one of the first shoppers to visit Gap Inc.’s Old Navy chain on Black Friday.

Faced with wary shoppers and a shorter holiday season, retailers are piling on deals as they jockey for market share during the most important sales period of the year. For the fourth year in a row, disposable incomes in 2013 have only inched up. As result, low-income Americans will again have a less-merry season than affluent consumers, who are more flush thanks in part to surging stock markets 

Read The Rest Of The Article Here

Just as I have predicted in my previous post about 6 weeks ago  “Who Else Wants To Cancel Christmas?”  this Christmas retail shopping season will be a terrible one.

The question is why? After all, Ben Bernanke, Janet Yellen, President Obama are all claiming the economy is doing better, the unemployment rate is going down and the real estate sector has made a full recovery. Plus, the stock market is hitting all time highs and if you listen to financial media the stock market is ready to go up another 50% in 2014. So, what gives? How come no one feels it.

It’s very simple.  The above mentioned things are merely an illusion. The average American family hasn’t benefited from any of those things. The financial bailout has been designed to bail out financial institutions and to make the rich richer by offering a select few access to FREE credit to speculate with.  Credit that largely has been unavailable to average Americans. Basically it is an unsustainable financial bubble that will blow up in 2014.  

I really hate Christmas, but I know that many people love it. So, here is my advice.  First, wait for as long as you can to buy Christmas gifts this year.  There will be huge discounts as we get closer to that MAGICAL f&#*ing day.  Second, enjoy it this year.  The Christmas of 2014-2017 will be terrible after the bear market feasts on the economy.

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Sorry. Christmas Has Been Officially Cancelled. 

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Your Secret Invitation To The Bull Orgy. Please RSVP asap.

Bloomberg Writes: Junk Glistens Under ‘Bernankecare’ as Worst Stocks Win

bull orgy investwithalex

Carl Giannone says he’s given up hunting for quality stocks. Now he’s simply riding the wave of upward momentum in the U.S. market. “It’s a game of musical chairs,” said Giannone, who manages an equities team at T3 Trading Group LLC in New York. “You just want to make sure you can sit down.”

The Federal Reserve’s near-zero interest rate turns five years old next month, the longest period without an increase in history. Coupled with more than $3 trillion of asset purchases, it adds up to “Bernankecare,” said Joshua Brown, chief executive officer of Ritholtz Wealth Management in New York. And it’s causing parts of the market to behave strangely. Stocks of companies with weak balance sheets are rising twice as fast as stronger ones; junk borrowers get rates lower than their investment-grade counterparts did before the credit crisis; and initial public offerings are doubling on their first day of trading.

While in the minority, some investors say prices have climbed so high it’s possible to look ahead and see an ugly end.Laurence Fink, chief executive officer of BlackRock Inc., the biggest U.S. money manager, said in an interview with Bloomberg Television on Nov. 12 that he feared a bubble and the Fed ought to quit buying so many securities.

Read The Rest Of The Article Here

Have you ever seen a real bull orgy? I haven’t, but a fathom it would be a fairly gross site to feast your eyes upon. Luckily for you can see an artificial one by turning on CNBC or reading any other kind of financial media. Bulls are salivating over each other, predicting the DOW at 20,000, 25K, 50K, to infinity and beyond. It’s quite entertaining to watch.

The article above is right on the money. At this stage everything is in the speculative bubble that will pop and it has become a game of musical chairs. However, that is not why I bring this up. I want to point your attention to a psychological breakdown of market participants. We all know the saying “Buy Low Sell High” or “Buy When There Is Blood On The Streets”, yet not a single person I know actually does it. 

Case and point, March 2009 bottom. Not a single person I know, not on TV or elsewhere advocated buying. No, they were all talking about the end of the world, how low the market will go and what stocks to short best. The blood was running on the street, the stocks were being given away and these fools couldn’t see the forest through the trees. Now the situation is completely reversed. When everyone should be selling and/or going short, everyone is screaming BUY, BUY, BUY.  It’s a fools game and if you buy today you are that fool.  I guess human psychology, the primary driver behind the stock market, will never change.

With such a backdrop it is very nice to know exactly when the Bear leg of 2014-2017 will start and the damage it will do. While Bulls are busy having their orgy, the market is getting ready for a massive haircut. You have been warned. 

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The Secret Behind How The Stock Market Works (Part 5)

Let’s take a quick look at a real stock market example to see the amazing precision this technique offers us.

Long Term Dow Structure2 

I cannot overstate how amazing this chart is. Just a few points. 

  • As we have already discussed, the move between 1994 bottom and 2000 top was 11,832 3-DV UNITS. The Dow topped at exactly 11,866 in January of 2000. Amazing!!! 
  • The up move between 1994 bottom and 2000 top was 11,832 3-DV UNITS. The down move between 2000 top and 2002 bottom was 6,483 3-DV UNITS. When you combine both values together you end up with a value of 18,315 3-DV UNITS. The move took 9 years. 
  • The up move between 2002 bottom and 2007 top was 10,156 3-DV UNITS. The down move between 2007 top and 2009 bottom was 8,137 3-DV UNITS. When you combine both values together you end up with a value of 18,293 3-DV UNITS.  The move took 7 years. 

So, the combined move took 16 years and there was only 22 3-DV UNITS of variance between the moves.  This variance over the 16 year period of time can be attributed to as little as 2 trading days and a few hundred points on the Dow.  This example alone should put to rest all claims that the stock market is random and unpredictable. Once again, when we identify the exact structure of the stock market through using our 3-Dimensional analysis we can time the market with great precision. 

For example, if we understand the structure above we know that the move between 2002 bottom and 2007 bottom will be identical in 3-DV UNITS to the move between 1994 bottom and 2002 bottom.  Just by having this information alone one should be able to figure out the stock market with great precision.  Further,  once we have hit the  from 2007 top and analyst using this technique knows that the upcoming down move will be exactly 8,127 3-DV UNITS. (18283-10156=8,127)

The only thing left to figure out at that stage is the angle or the velocity of the upcoming decline. Multiple ways will be shown to figure out that inflection point over the next few chapters, but for now let’s assume that this information is already available. That would mean that once the 2007 top is confirmed you would know exactly where the market would bottom.  So, while everyone is freaking out in late 2008 and early 2009 you are either shorting the market and making a lot of money or you are setting yourself up for the upcoming bull market that you know will start in March of 2009.

Either way, I hope this clearly illustrates how powerful this 3-Dimensional analysis can be. Also, please keep in mind that the example above is just a tiny sample of the information available to you once the 3-Dimensional analysis is performed. 

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Carl Icahn Agrees, Every True Bear Will Get A Lamborghini

bear in lamborghiniI remember 2006 very well. I was going around telling people the following,  “Listen guys, this is unsustainable, this market is in a crazy bubble driven primarily by mortgage finance and it will blow up soon”.   Most didn’t care and those who did called me “Boy who cried wolf”.

Fair enough. I decided to take matters into my own hands by shorting subprime mortgage lenders and multiple other real estate related companies that I believed are nothing more than a pile of stinky (but worthless) mortgage paper. Yet, the companies kept going up throughout 2006 and early 2007. Not only going up, they kept surging up like they were the best investments in the world. This was before my timing work and I was feeling miserable. My research was 100% accurate, yet the market was going the other way.  When these stocks did finally collapse in the summer of 2008, they have collapsed within weeks. With one stock price going from as high as $87 to as low as ZERO (filed for bankruptcy) in 11 trading days. I was vindicated, but it didn’t matter.

What’s the point of this story?

Even though I am currently a huge bear based on fundamental, macro and timing analysis, I do not currently hold a short position.  Quite the opposite. I am long the market, but solely based on my timing work.  My mathematical work clearly illustrates that a severe (3 year) bear market is starting in 2014 to complete in 2017. Before that happens, I feel the pain the bears are going through. Of course, they are right but they are suffering through the most difficult stage of all…. market blow off top.  This is the time where there are almost no bears left. Most of them have been killed.  Case and point.

S&P 500 Will Be at 2,000 Sooner Than You Think article that not only makes fun of the bears, but claims that everyone is bearish and that’s why S&P will hit 2000 soon. Well, maybe everyone is bearish if you can find any bears left. I don’t know of any. Even permabears have turned bullish.  

 

Perhaps he is talking about Carl Icahn who has turned bearish CARL ICAHN: The Stock Market Could See A ‘Big Drop’ And I’m ‘Very Cautious’

To moral of the story is this. With the market surging ever higher, this is the most difficult time to be a bear.  Every bear looks like a complete idiot and loser. Yet, as the saying goes, it is always darkest before the dawn.  True bears who maintain their position at this time will soon be greatly rewarded.  So much so that every true bear will be able to afford a Lamborghini.   

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Larry Summers Predicts Doom And Gloom. I Agree.

 BusinessWeek Writes: Larry Summers Has a Wintry Outlook on the Economy

irrational-investwithalex

Larry Summers, the man who was almost chairman of the Federal Reserve, is surprisingly gloomy about U.S. growth prospects. In a recent speech at the International Monetary Fund, he suggested the U.S. might be stuck in “secular stagnation”—a slump that is not a product of the business cycle but a more-or-less permanent condition.

Summers’s conclusion is deeply pessimistic: If he’s right, the economy is incapable of producing full employment without financial bubbles or massive stimulus, both of which tend to end badly. The collapse of the debt-fueled housing bubble led to the financial crisis of 2007-09, and some policymakers worry that the Fed’s easy-money policy is setting the economy up for another fall. Witness the Dow Jones industrial average at 16,000.

“Conventional macroeconomic thinking leaves us in a very serious problem,” Summers said in his speech. “The underlying problem may be there forever.” He added: “We may well need in the years ahead to think about how to manage an economy where the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back below their potential.”

Read The Rest Of The Article Here

Mr. Summers is right on the money.  Exactly as I have argued before, we now know the true reason behind his candidacy withdrawal from FED Chairmanship role.  Unlike Janet Yellen who is a cheerleading fool who believes she can control the markets, Mr. Summers has a clear view of what’s coming.

He doesn’t want to be at the helm of the next substantial economic and financial market downshift that will start in 2014. Further, he is very well aware that the FED is the primary source of the problem. Instead of creating economic stability and an environment that is conducive to productive capital allocation, the FED’s have blown bubble after bubble in order to give the appearance of economic stability. Yet, any such economic stability is a mirage at best.  In reality it is a ticking time bomb. 

If we can learn anything from history, every financial bubble eventually bursts. Some spectacularly so and some with the whimper. As my timing work illustrates, the bear market will start in early 2014 and complete itself in 2017. I expect to see some fireworks as the market deflates back to where it should be. 

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