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Bears In Lamborghinis

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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What You Ought To Know About Today’s Bull Orgy

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

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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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How The US Government Guarantees Full Employment

BusinessWeek Writes: The U.S. Job Market Won’t Be Normal Until 2017, Says Goldman

 labor market inveswithalex

Two economists at the Federal Reserve Bank of Kansas City concluded recently that at the current rate of progress, the U.S. labor market won’t get back to normal until the summer of 2015. That’s bad enough. But Goldman Sachs (GS) economists, examining the same data, conclude in a report today that normal might not arrive until the beginning of 2017.

Either way it’s pretty depressing, considering that the recession began in December 2007. The financial markets are betting that the Federal Reserve’s rate-setting Federal Open Market Committee will start tapering purchases of long-term bonds sometime in early 2014. But the FOMC has said that the purchases will continue“until the outlook for the labor market has improved substantially in a context of price stability.” If the FOMC sticks to that commitment, bond purchases could continue longer than many people expect.

I really have no idea how they come up with these numbers. Maybe they have a supercomputer in their office churning out billions of calculations per second or maybe they just throw darts at the calendar. I think the latter is more plausible.

The problem with their analysis is they are discounting continual economic growth over the next 5 years. Well, let me ask you something. What if instead of economic growth our financial markets and our overall economy go through another severe contraction as I constantly argue? Are we going to normalize by 2017 or will the chart above take another dive? I think you know the answer to that.

The labor market in the US is facing strong headwinds. I think the situation we have today is the new norm and even that will continue to deteriorate.  With our economy, financial markets, Obama care, outsourcing, robotics and higher productivity rates all putting negative pressures on full time employment, the labor market picture going forward is not pretty. 

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Why The Rich Are Hording Cash

CNBC Writes: Rich families are hoarding cash: Citi

 hoarding-cash-investwithalex

A new survey of family offices by Citi finds that the wealthy are cash heavy-meaning they may fall short of the investment returns they’re expecting.

Wealthy families have about 39 percent of their assets in cash, according to a recent poll of more than 50 large family office representatives from 20 countries conducted by Citi Private Bank.

Most of the families surveyed expected interest rates to rise. About 60 percent projected long-term market rates to rise 50 basis points and 17 percent said they would increase 100 basis points or more. Just 2 percent expected U.S. rates to fall.

Read The Rest Of The Article Here

While not always the case, the rich are typically more savvy when it comes to investing and/or managing money. They typically have a better understanding of the economy and the financial markets.  So, why are they hoarding so much cash?

Maybe they are following my advice (to accumulate as much cash as possible) or maybe they are simply aware of what is going on in our economy and our financial markets. They look around and they realize that all major asset prices (stocks, bonds and real estate) are way overpriced.  Maybe they have a hunch that the only direction interest rates can go is up. Maybe they have a clear understanding that when the interest rates do go higher, it will have a severe negative impact on the overall economy.  As such, they hoard as much cash as possible to A. Prevent downside and to B. Have it available when lower prices present themselves.

Don’t believe me? Find the richest person you know and ask them. 

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Stock Market Update, December 19th, 2013

  December 19,2013 chart

Summary: Continue to maintain a LONG/HOLD position. 

The stock market continues to push higher, setting new daily highs in the process. The trend is most definitely up.  As such, there is no change in our overall position for the time being. As my mathematical work clearly shows and as I have stated numerous times here, the bear market will start in 2014. If you would like to know the exact date of the turn, I will make that information available in early 2014. 

For now, the market continues to linger around its all time highs. My previous updates and various fundamental issues associated with the market remain right on the money. Please click on the links below to see them. 

November 22nd Report

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, December 19, 2013

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The Secret Behind This Stock Market Run Up

 CNBC Writes: Smart Money: Smart money? Looks like it’s mom and pop

Happy bull investwithalex

For the most recent leg of the rally, it seems like the so-called smart money may not be so smart after all.

If that’s true, the smart money has been losing.

Employing even more conventional wisdom, that might suggest the market is forming a top and ready to fall, as retail investors are often thought of as the last ones to a rally.

That thinking, though, is getting challenged.

There’s no doubt the retail investor has warmed up to the market in 2013 after sitting out much of the gains since the March 2009 lows. The mom-and-pop crowd ripped just short of $300 billion out of mutual funds from the 2009 low point through the end of 2012 even as the market gained more than 110 percent during the span.

Read The Rest Of The Article

As I have mentioned in my previous posts, the overall BULLISH psychological backdrop is now at the extreme and flashing warning signs.

Various metrics aside, I see very few bears.  Even people who used to be bears and now bulls.  All popular media is overwhelmingly BULLISH. Even if the article mentions “a possible drop” such argument is immediately counter attacked by stating something to the tune of “If the market drops it would be a wonderful buying opportunity to add more stocks”.

The article above is no different. It clearly illustrates how bullish everyone is. It’s a well known fact that Retail investors are the last ones on/off and as such could not be considered as “smart money”. Over 200 years of market data teaches us that. Yet, somehow the article twists it to be so.  Simply put, neither the market nor investors can do wrong in this market.

Will this continue? I do remember seeing similar type of prevailing BULLISH psychology before, at 2000 and 2007 tops. We all know how that ended. 

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The Secret Behind This Stock Market Run Up 

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Warning: The Bear Makret Is Coming. Top In Early 2014

Bloomberg Writes: Stock Funds Lure Most Cash in 13 Years as Market Rallies

 money flowing investwithalex

Investors are pouring more money into stock mutual funds in the U.S. than they have in 13 years, attracted by a market near record highs and stung by bond losses that would deepen if interest rates keep rising.

“The timing of retail investors tends to be terrible,” said Jonathan Pond, an independent financial adviser in Newton, Massachusetts, who oversees $200 million. The deposits may be a contrarian indicator of a market near a top, he said.

Jeremy Grantham, chief investment strategist at Boston-based money manager Grantham Mayo Van Otterloo & Co., told clients in a letter this week, “We will have the third in the series of serious market busts since 1999.” BlackRock Inc. Chief Executive Officer Laurence D. Fink said this month that stocks may decline as much as 15 percent because of political risks in China, Japan, France and the U.S.

Read The Rest Of The Article

As the melt up in the stock market continues, retail investors are the last ones to join the party. As always. As the article indicates, last time we had similar inflows was at the end of 1999 and early 2000 or right before the tech collapse and the subsequent recession.

I would go even further and suggest that today’s investor psychological backdrop is identical to that of 2000 top.  For example, even though multiple high performing investors did spot the technology bubble and have tried to warn the others, for the most part they were completely ignored until it was too late.  It was the “NEW” economy the old guard did not understand.  Today’s environment is identical, except one fact. Instead of it being the NEW economy, today most markets participants believe that the FED can control the economy and its interest rates. That is of course a mirage that they will pay for dearly. Overall, the bullish sentiment is off the charts. As always, retail investors will lose the most as soon as the bear market kicks in.

As I have stated so many times before, the bear market will start in March of 2014 and will take 3 years to complete. While it will not be a violent move to the downside, it will shave off about 30-50% from today’s market prices over the next few years.  You have been warned.  

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PIMCO Shares a Valuable Tip

CNBC Writes: Gross: The stock market and asset prices are ‘bubbly’

 drastically-overpriced-investwithalex

Bill Gross, the co-chief investment officer of Pimco, said he thinks the stock market and “all asset prices are bubbly.”

“Bond prices, stock prices … and profit margins are bubbly to the extent that [if] any of them can be sustained, I guess, is the ultimate test,” Gross said on CNBC Wednesday.

He said the Federal Reserve‘s QE program is a “rather blunt instrument in terms of elevating, and perhaps, bubbling stock prices.”

“Margin debt is at historic levels to the extent that they want to simmer down equity prices [but] they don’t have to attack it through tapering … they can raise margin requirements.”

“The bond market is bubbly because the policy rate at 25 basis points is artificially suppressed. Investors and savers are not receiving what they have historically … in historical terms would probably be around 2 to 2.5 percent,” he said.

I have very little to add here. Mr. Gross is right on the money. I have been saying this for a while as well, everything is overpriced. Big time. The only thing I will add into the mix is my timing and mathematical work. Once again, it is predicting the beginning of a severe Bear Market that will only end  in 2016. There is no stopping it. 

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Timing The Market & Advanced Cycle Analysis (Part 6)

 oscillation

Continuation of part 5….

PRIMARY CYCLES WORKING IN THE STOCK MARKET

(Please note that it took me a considerable amount of time to work out the cycles and their appropriate allocation. After reading this section, I would highly encourage you to perform your own cycle analysis to confirm the cycles below. Doing so will give you a better level of understanding and reassurance.)

Market Cycle #1: 5-Year Cycle. This cycle represents the primary trend in the stock market. In fact, this cycle had been mentioned earlier in this book when it was indicated that this particular cycle represents major long-term movements in the stock market. For example, 1982 to 1987, 1994 to 2000 and 2002 to 2007 are ALL represented by this exact five year cycle. Typically this cycle moves 5-years up and then 5 years down.

Internally, this cycle moves in the following fashion. Five years up and five years down. During the bull market the cycle moves 2 years up-1 year down-2 years up and during the bear market 2 years down-1 year up – 2 years down.  Because this cycle represents the primary trend in the stock market, an analyst who is working with this cycle would have to multiply the composite created by the cycles below by the five year cycle in order to create an accurate representation of the stock market.

Market Cycle#2: 52-Months Cycle. This cycle moves bottom to bottom every 52 months. Meaning the bull phase is represented by the first 26 months and the bear phase is represented by the following 26 months.

Market Cycle#3: 27-Months Cycle. This cycle moves bottom to bottom every 27 months. Meaning the bull phase is represented by the first 13.5 months and the bear phase is represented by the following 13.5 months.  

Market Cycle#4: 18-Month Cycle. This cycle moves bottom to bottom every 18 months. Meaning the bull phase is represented by the first 9 months and the bear phase is represented by the following 9 months.

Market Cycle#5: 13-Month Cycle. This cycle moves bottom to bottom every 13 months. Meaning the bull phase is represented by the first 6.5 months and the bear phase is represented by the following 6.5 months.

The cycles above represent the longer term moves in the market. However, as mentioned before cycle analysis can be applied to any time frame. An analyst working with shorter time frames (daily/hourly) would just have to narrow down the window of analysis in order to figure out the short term cycles and their relevant application to the stock market. When done, these shorter term cycles must be added into the composite above.  Doing so will produce a very accurate composite on both the long-term and the short-term time frames.

To be continued……

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Timing The Market & Advanced Cycle Analysis (Part 6)

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What Everyone Is Ought To Know About The Upcoming Real Estate Meltdown

Bloomberg Writes: Pending Sales of Existing Homes Slump by Most in Three Years

 housing crash investwithalex

Fewer Americans than forecast signed contracts to buy previously owned homes in September, the fourth straight month of declines, as rising mortgage rates slowed momentum in the housing market.

The index of pending home sales slumped 5.6 percent, exceeding all estimates in a Bloomberg survey of economists and the biggest drop in more than three years, after a 1.6 percent decrease in August, the National Association of Realtors reported today in Washington. The index fell to the lowest level this year.

Mortgage rates last month reached two-year highs and some homeowners are reluctant to put properties up for sale as they wait for prices to climb, leading to tight inventories. Those forces are pushing some would-be buyers to the sidelines and slowing the pace of recovery in real estate, giving Federal Reserve policy makers reason to delay reducing stimulus when they meet this week.

Read The Rest Of The Article Here

On October 3rd, 2013 I put my foot down and made a gutsy call. I have called for a housing top at the time. You can read the article here. I Am Calling For A Real Estate Top Here

Even though most people have dismissed this forecast I continue to stand by it. As new data points for the real estate market continue to come in, it looks as if I have made the correct and exact call. Yes, certain markets will roll over and start going down a little bit later, but the overall market is starting to look top heavy here. I would expect to continue seeing weakness over the next few quarters until we begin to see clear indications that the real estate market is heading down. At that time a lot of people will freak out and we should see a real inventory spike followed by even lower real estate prices. Of course this cycle will feed on itself for a long time.

Remember, this will be the 3rd leg down for the real estate sector. The first one was the initial decline between 2007 and 2010. Typically, 3rd legs down are longer and steeper. As such one shouldn’t be surprised to see large drops in housing prices over the next few years. As my previous valuation work here showed, overpriced markets like So. Cal should and could go down as much as 50%. 

For now we wait and see as the housing market continues its rolling over process.  

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What Everyone Is Ought To Know About The Upcoming Real Estate Meltdown