The FED Has Lost Control And Credibility

Daily Chart September 21 InvestWithAlex

9/21/2015 – A positive day with the Dow Jones up 125 points (+0.77%) and the Nasdaq up 2 points (+0.04%)

The FED generals are out in force to proclaim that the FED hike is still possible later on this year. Nothing new here, they have been feeding this to investors since the beginning of this year.

With that in mind, someone should tell the FED that their credibility is now gone. Most investors have figured out by now that they will not raise. Not in October and not next year. For the reasons outlined here, Can The Stock Market Crash Due To The FED’s Inability To Raise Interest Rates? and here The FED Blinks. How Will The Market React?

In terms of the stock market, it might be as simple as this. Occam’s razor says the stock market is in a downtrend

trend is your friend investwithalex

In addition to that, the Dow Theory (if you are a follower) has confirmed a shift into a bear market at the same time. So much so that the stock market would have to stage quite a rally, pushing itself to new highs, just to force itself out of this longer-term bearish pattern.

Is that impossible?

Not necessarily, but you better have a good response to the following question…..why would it?

Are earnings about to surge higher? Especially now that the liquidity is drying up and stock buybacks are slowing down.
Will the US Economy stage some sort of a miraculous recovery and surge higher?
Will the FED flood the market with QE-4..5…6 and negative interest rates?
Are we in a “this time is different” environment where the stocks are no longer expensive?

And you if you have answered “YES” to any of the above, you might want max out your margin and load up on stocks here.

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. September 21st, 2015 InvestWithAlex.com

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The FED Has Lost Control And Credibility Google

September 15, 2015September 15, 2015

The Scariest Thing About Today’s Stock Market

Daily Chart September 15 InvestWithAlex

9/15/2015 – A positive day with the Dow Jones up 229 points (+1.40%) and the Nasdaq up 55 points (+1.14%)

I have discussed this over the last few months, but I believe Robert Shiller hits the same nail on the head as well.

Robert Shiller: THIS is the sign we’re in a bubble

Just before the dot-com bubble burst, investors had very little confidence in stock valuations, but they were confident in the market in the short term, he said.

“That’s the sign of the bubble. They’re worried but they’re thinking they’ll get out,” he told CNBC’s“Squawk Box.” “This can suddenly turn, and we’re looking somewhat like that now.”

Bingo. And as I have pointed out here at least 100 times this year, today’s Shiller Adjusted S&P P/E Ratio is the 3rd highest in history. Right behind 1929 and 2000 tops.

Plus, after a 5-7 year bull run, most investors today assume 2-3 things .

Every sell-off is a buying opportunity. “Buy the dip”.
The FED will be able to backstop any and all declines or recessions.
Someone will ring the bell at the top and everyone will exit the market in an orderly fashion. Holding hands and singing Kumbaya.

It is my hope that most reasonable people will quickly realize how ridiculous all of that sounds. And instead of adhering to such thinking, investors might want to ask themselves the following questions…..

What if we have shifted gears into a bear market and every rally should now be sold?
What if the FED is powerless….we are already at zero….what else can they do?
What if the market corrects itself in a rapid and violent fashion? To the point where no one is able to exit? Just as the Nasdaq did in 2000.

I believe those are the right questions to ask. Everything else is just noise.

Listen, as we head into the most dangerous time of the year, not many people anticipate a further correction. Let alone a crash. My friends still laugh at me when I suggest we might re-test late August lows. An ominous sign? We will soon find out.

(***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. September 15th, 2015 InvestWithAlex.com

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The Scariest Thing About Today’s Stock Market Google

September 8, 2015September 8, 2015

Why Warren Buffett Is No Longer A Value Investor

9/8/2015 – A big up day with the Dow Jones up 391 points (+2.43%) and the Nasdaq is up128 points (+2.73%)

While this will upset quite a few of Mr.Buffett’s disciples, I no longer believe that Warren is following his own advice. Advice such as, “Be greedy when others are fearful, fearful when others are greedy, buy $1 bills for .50 cents, etc…” Here is why….

Warren Buffett plans to invest $32 billion, soon

Warren Buffett said Tuesday the U.S. economy is growing at about 2 percent, and he’s planning to invest $32 billion in the next four to five months.The previous time the Oracle of Omaha spoke with CNBC in early August, he discussed the conglomerate’s $37.2 billion acquisition of Precision Castparts (NYSE: PCP), an aircraft equipment maker, saying “This a very high multiple for us to pay.”

There you go, even Mr.Buffett thinks he is paying a “A Very HIGH Multiple”.

My question is……..why?

As my previous posts here clearly illustrate, I believe we are in an overvaluation bubble of epic proportions. In the past, Mr. Buffett didn’t have a problem with sitting on the sideline while waiting for the market to crater. Then picking up wonderful investment opportunities at give away prices. That is how he has made his fortune.

It is unclear why Berkshire Hathaway is trying to get rid of its cash by investing right in the middle of this overvaluation bubble. Could it be due to the fact that Warren Buffett has fallen into a trap frequented by most other investors. Particularly today. A cult like believe in the FED and their ability to backstop any market decline? A believe that we are in the early stages of a 16-18 year bull run? A believe that our economy will improve and not slide back into a recession?

Sure, the investments he is making today will pay off over the next 15-20 years. Short-term, I believe this to be a very dumb decision. Something Mr. Buffett will surely write about in his 2017 Annual Letter To Shareholders. Mark my words.

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Why Warren Buffett Is No Longer A Value Investor Google

August 19, 2015August 19, 2015

Why The FED Will Not Raise Interest Rates

Daily Chart August 19 2015

8/13/2015 – Another negative day with the Dow Jones down 160 points (-0.91%) and the Nasdaq down 40 points (-0.80%)

Let’s talk about today’s FOMC Minutes.

As the FED continues to beat around the bush, futures now suggest that the FED will forgo raising interest rates in September. This joyous realization was followed by “Let’s Party 150 Dow Point Spike” followed by a “Oh S#*$, the Economy Ain’t Alright” 150 point sell-off.

I will simply repeat what I have said here last week. No further commentary is necessary.

I am 75% confident that the FED will not raise interest rates at all and 100% confident that they will not raise it in any meaningful way. What is meaningful? Even 8 separate hikes at 25 bps each would be laughable here. And while anything above that will matter, I am extremely confident that we will not even get close to that over the next 2-5 years.

Here is why…….

Last week China has launched an official currency war by devaluing the Yuan 3 times in a row (thus far). Japan is trying to do the same and the EU is threatening further easing and/or QE. In this ocean of devaluation, the US cannot afford to have a strong currency.
Plus, the US Economy is rolling over into a recession. Some of today’s official numbers are starting to reflect that.
We are on the verge of a massive down leg in our equity markets. At least based on my mathematical and timing work.
Commodities have collapsed.
Deflationary forces are reappearing throughout the economy.
Etc….

As I have mentioned before, this is the worst case scenario for the FED. They are already TOO LATE. Now they are stuck in a situation where our economy and capital markets collapse while they are rendered powerless. As soon as other investors realize that……well…….watch out below.

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Why The FED Will Not Raise Interest Rates Google

August 18, 2015August 18, 2015

What Is Wrong With This Stock Market?

Daily Chart August 18 2015

8/18/2015 – A down day with the Dow Jones down 33 points (-0.19%) and the Nasdaq down 32 points (-0.64%)

Investors are beginning to realize that there is something seriously wrong with the stock market. Mainstream financial media is starting to pickup on that as well.

Stock market bulls are playing with fire

By this measure, the current stock market is anything but healthy. The 10-week moving average of weekly readings recently rose to 5.7%, well above the level that many researchers use as the threshold for a “sell” signal. (Fosback, for example, set this threshold at 5%, considering readings above that level as evidence of “extreme market divergence and … bearish.” The threshold employed by Ned Davis Research, the Venice, Florida-based research firm, is 4.4%.)

That is indeed the case. Further, I have shown this chart before…..

Macro Data InvestWithAlex

Considering the analysis above, there are only two distinct outcomes at this stage. Either the stock market and/or our economic data stages a massive come back rally (I don’t see how nor why) -OR- the stock market is about to play catch up with economic reality. Unfortunately for all of us, there is quite a bit of ground to cover on the downside.

By the way, Marc Faber sees the same thing….

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What Is Wrong With This Stock Market? Google

August 17, 2015August 17, 2015

Paul Krugman: Slams China’s, Praises America’s Ponzi Finance

Daily Chart August 17 2015

8/17/2015 – A positive day with the Dow Jones up 68 points (+0.39%) and the Nasdaq up 43 points (+0.86%)

Sometimes you just have to throw your hands up in the air and say…”What”? Paul Krugman believes that Chinese officials are ill equipped to run a proper Ponzi Scheme. Yet, the FED is doing it perfectly. Bungling Beijing’s Stock Markets

The New York Times’ Paul Krugman wrote today about increased concerns that the crony capitalists who run the Chinese economy simply don’t know what they’re doing. “Their zigzagging policies over the past few months have been worrying,” he noted, asking “i]s it possible that after all these years Beijing still doesn’t get how this ‘markets’ thing works?”

Apparently, the answer is “yes,” as he demonstrates that the government fundamentally misunderstands basics like the ratio of consumption to production. It attempted to float its economy through infrastructure spending — a sound idea — but did so “by funneling cheap credit to state-owned enterprises,” resulting in them taking on debt — which isn’t quite so sound an idea.

Fair enough. And how is this different from the FED funneling cheap credit to the US Corporations. Companies that should have failed in 2008/2009. And then flooding our entire financial system with massive amount of liquidity that went towards malinvestment and share buybacks. I don’t get it. He goes on…

Next, China adopted an official policy of boosting stock prices, combining a stock-buying propaganda campaign with relaxed margin requirements, making it easier to buy stocks with borrowed money. The goal may have been to help out those state-owned enterprises, which could pay down debt by selling stock. But the consequence was an obvious bubble, which began deflating earlier this year.

Again, Mr. Krugman, how is this different from what the FED did? Zero interest rates for over 6 years now and over $1 Trillion in QE. That led directly to share buybacks, speculation and the stock market bubble that we are witnessing today. Finally……

If they really don’t (know what they are doing), that’s a big concern. China is an economic superpower — not quite as super as the United States or the European Union, yet, but big enough to matter a lot. And it’s facing tough times. So if its leadership is really as clueless as it has been looking lately, that bodes ill, not just for China, but for the world as a whole.

At least something we can agree on. The whole world is following the same playbook. Juice the stock market and the economy NOW, worry about it later or when things begin to blow up. Well, it appears they are beginning to blow up. In China first, then here. And indeed, that bodes ill for the world as a whole.

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Paul Krugman: Slams China’s, Praises America’s Ponzi Finance Google

August 12, 2015August 12, 2015

Are Global Woes Finally Catching Up To The US Markets?

Daily Chart August 12 2015

8/12/2015 – A positive day with the Dow Jones up 0 points (0.00%) and the Nasdaq up 8 points (0.15%)

If you haven’t noticed, China’s dual Yuan devaluation has sent the Dow down 500 points over the last two days. Although half of this down move has been retraced thus far. It is important to understand that China is doing this our to necessity. And it’s not only China. We are facing a similar setup worldwide. Consider the following.

iShares MSCI Emerging Markets (EEM) which is down 19 percent from last summer’s highs.
DB Commodities Tracking Index Fund (DBC), which is down 43 percent from last summer’s highs
Factory orders here have expanded on a monthly basis only twice in the last 11 months. Excluding transportation, factory orders collapsed at a 7.5 percent annual rate in July, the worst since the maw of recession in 2009.
In Japan, despite a near 40 percent drop in the yen, industrial production is growing at just a 2 percent annual rate.
In China, the PMI manufacturing activity index dropped to 47.8 in July, down from 49.4 in June and below the neutral 50.0 mark for the fifth month in a row. Chinese factories are suffering their deepest contraction in activity since July 2013.
In China, the PMI manufacturing activity index dropped to 47.8 in July, down from 49.4 in June and below the neutral 50.0 mark for the fifth month in a row. Chinese factories are suffering their deepest contraction in activity since July 2013.
Etc….

Can the US markets recover and/or avoid worldwide/commodity collapse?

I don’t see how. What you have to understand is this. Most of the recovery off of 2009 bottom has been driven by zero interest rates, speculation, QE and stimulus. And now that it’s gone, nothing can prevent further collapse. China might be the first to pull the trigger in this currency war, but it is just a matter of time now before the FED cancels interest rate hikes. Not a good sign.

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Are Global Woes Finally Catching Up To The US Markets? Google

August 11, 2015

China, Deflation….Are We In A Bear Market Already?

Daily Chart August 11 2015

8/11/2015 – A big down day with the Dow Jones down 210 points (-1.19%) and the Nasdaq down 62 points (1.22%)

Today’s sell-off and subsequent market adjustments were caused by China’s “unexpected” Yuan devaluation. In simple terms, most nations are now in a full blown currency war. Trying to devalue their way to prosperity at the expense of someone else.

A more complex view incorporates understanding that China’s move opens up a door to future fundamental adjustments throughout the world. From interest hikes in the US to the price of oil. He is a very simplistic view for the time being. Q&A: What yuan devaluation means for China, other countries I will attempt to cover this subject in greater detail over the next few weeks.

Now, Gross Sees Global Economy Dangerously Close to Deflation

Once there is a “whiff of deflation, things tend to reverse and go badly,” Gross said Friday in a Bloomberg Radio interview with Tom Keene. Gross pointed to how the CRB Commodity Index isn’t just at a cyclical low, but lower than in 2008 when Lehman Brothers Holdings Inc. went bankrupt.

I have held this premise for a number of years now. Most people believe we escaped deflation in 2008/2009 by the skin on our teeth. End of story. Well, WE DIDN’T. Deflation was simply covered up for the time being by zero interest rates, QE and massive amount of stimulus flowing through our financial system. Now that the stimulus is gone, deflation will become more prominent once again.

When the global economy has as much debt as we do now, estimated to be at around $230 Trillion, there could be no other outcome. Either deflation, outright default or hyperinflation.

Finally, MarketWatch asks Has the bear market in stocks already begun?

We have asked this exact question about 10 days ago. Let’s take a closer look at both sides of the argument.

Bearish Case:

It’s nothing that we haven’t talked about on this blog before. Think about it in the following fashion. The NYSE (largest index by capitalization) is already down 4-6% from its trading range initiation 13.5 months ago. The Dow set an important top on March 2nd, only to set in a double top on May 19th. The Dow Transports are flashing a major bearish reversal sign.

All of the above suggests that the market has been distributing for close to a year and once this distribution period ends, a new bear market leg will kick in. In fact, considering where the indices are today, it might have already started.

Bullish Case:

The primary argument on the bullish side is as follows.

The market has been consolidating after a big 5.5 year run up: It is resting before the next leg up — Fair enough. I will give them this one. That is technically possible.
The market is not too expensive: I am seeing this over and over again. This time is different, this sector, that sector, accounting, statistics, etc…. People try to twist their numbers in a million different ways to justify today’s valuations. At the end of the day it is rather simple. Shiller’s S&P P/E is at 27, the third highest level in history (behind 1929 and 2000). It is never different…..case closed
We are in a secular bull market that has another 10 years to go. Wrong. If you study history you will see that bull/bear markets alternate in clearly defined 17-18 year cycles. The 2009 bottom was a mid cycle bottom, not a terminal point of 2000-2017 bear market. Meaning, we still in a secular bear market that will only complete in 2017-18. You can learn more about it here Market Cycles

Who is right?

I will let you come to your own conclusion. From my vantage point, the market has been in distribution for over a year now.

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China, Deflation….Are We In A Bear Market Already? Google

August 10, 2015

Why You Should NOT Follow Warren Buffett’s Investment Advice

Daily Chart August 10 2015

8/10/2015 – A positive day with the Dow Jones up 241 points (+1.39%) and the Nasdaq up 58 points (+1.16%)

Warren Buffett believes you should be fully invested. WARREN BUFFETT: Stocks are going ‘a lot higher’

Buffett reiterated that he was a long-term investor, saying he expected prices to be “a lot higher” 10 years or 20 years from now.

No one is questioning Mr. Buffett’s investment acumen here and I would have to agree with his analysis. My own mathematical and timing work shows that the stock market will be much higher 10 years from now. That is not the question. The question is, are you able and/or are you willing to take a 30-50% haircut over the next 2-3 years?

If your answer is NO, understand the following two points.

Mr. Buffett and Berkshire Hathaway are “The Stock Market”. Meaning, even if he was inclined to get out, he wouldn’t be able to. As a result, there is no point in being bearish or telling others to get out. Instead, consider this WSJ ‘Buffett Indicator’ Flashes Warning for Stocks
The difference between Mr. Buffett and most investors is so vast that people should be very careful when listening to a simple “buy and hold” investment advice, even from the man himself. As far as I know, no one has been able to fully replicate his success.

That is to say, Mr. Buffett’s advice is right on the money, but only if you are willing to take a massive beating over the next 2-3 years.

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Why You Should NOT Follow Warren Buffett’s Investment Advice Google

August 6, 2015August 6, 2015

Margin Debt Monstrosity & Fed’s Achilles Heel

Daily Chart August 6 2015

8/6/2015 – A negative day with the Dow Jones down 120 points (-0.69%) and the Nasdaq down 83 points (-1.62%).

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.

Raise interest rates NOW in order to reload their recession fighting toolkit before the next recession hits. Again, we are nearly there.
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.

The Federal Reserve poses the biggest threat to the stock market — and the reason why will surprise you

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….

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Margin Debt Monstrosity & Fed’s Achilles Heel Google

Tag: daily update

The FED Has Lost Control And Credibility

The Scariest Thing About Today’s Stock Market

Robert Shiller: THIS is the sign we’re in a bubble

Why Warren Buffett Is No Longer A Value Investor

Warren Buffett plans to invest $32 billion, soon

Why The FED Will Not Raise Interest Rates

What Is Wrong With This Stock Market?

Stock market bulls are playing with fire

Paul Krugman: Slams China’s, Praises America’s Ponzi Finance

Are Global Woes Finally Catching Up To The US Markets?

China, Deflation….Are We In A Bear Market Already?

Why You Should NOT Follow Warren Buffett’s Investment Advice

Margin Debt Monstrosity & Fed’s Achilles Heel

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