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Schedule for Week of Sept 24, 2017

by MashiroMomo from Pixabay

Schedule for Week of Sept 24, 2017

by Bill McBride on 9/23/2017 08:09:00 AM

The key economic report this week is New Home sales for August on Tuesday.

Other key indicators include the third estimate of Q2 GDP, and July Case-Shiller house prices.

—– Monday, Sept 25th —–

8:30 AM ET: Chicago Fed National Activity Index for August. This is a composite index of other data.10:30 AM: Dallas Fed Survey of Manufacturing Activity for September.

—– Tuesday, Sept 26th —–

Case-Shiller House Prices Indices9:00 AM ET: S&P/Case-Shiller House Price Index for July.This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the June 2017 report (the Composite 20 was started in January 2000).

The consensus is for a 5.9% year-over-year increase in the Comp 20 index for July.

Early: Reis Q3 2017 Apartment Survey of rents and vacancy rates.

New Home Sales10:00 AM ET: New Home Sales for August from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the July sales rate.

The consensus is for 583 thousand SAAR, unchanged from 571 thousand in July.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for September.

12:45 PM: Speech by Fed Chair Janet Yellen, Inflation, Uncertainty, and Monetary Policy, 59th NABE Annual Meeting, Cleveland, Ohio

—– Wednesday, Sept 27th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.8:30 AM: Durable Goods Orders for August from the Census Bureau. The consensus is for a 1.5% increase in durable goods orders.

10:00 AM: Pending Home Sales Index for August. The consensus is for a 0.1% decrease in the index.

—– Thursday, Sept 28th —–

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 270 thousand initial claims, up from 259 thousand the previous week.8:30 AM: Gross Domestic Product, 2nd quarter 2017 (Third estimate). The consensus is that real GDP increased 3.1% annualized in Q2, up from second estimate of 3.0%.

11:00 AM: the Kansas City Fed manufacturing survey for September.

—– Friday, Sept 29th —–

Early: Reis Q3 2017 Office Survey of rents and vacancy rates.8:30 AM: Personal Income and Outlays for August. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for September. The consensus is for a reading of 58.6, down from 58.9 in August.

10:00 AM: University of Michigan’s Consumer sentiment index (final for September). The consensus is for a reading of 97.2, unchanged from the preliminary reading 97.6.

 

Published at Sat, 23 Sep 2017 12:09:00 +0000

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Fed QT Stocks, Gold Impact

 

Fed QT Stocks, Gold Impact

By: Adam Hamilton | Fri, Sep 22, 2017


This week’s landmark Federal Open Market Committee decision to launch quantitative tightening is one of the most-important and most-consequential actions in the Federal Reserve’s entire 104-year history. QT changes everything for world financial markets levitated by years of quantitative easing. The advent of the QT era has enormous implications for stock markets and gold that all investors need to understand.

This week’s FOMC decision to birth QT in early October certainly wasn’t a surprise. To the Fed’s credit, this unprecedented paradigm shift had been well-telegraphed. Back at its mid-June meeting, the FOMC warned “The Committee currently expects to begin implementing a balance sheet normalization program this year”. Its usual FOMC statement was accompanied by an addendum explaining how QT would likely unfold.

That mid-June trial balloon didn’t tank stock markets, so this week the FOMC decided to implement it with no changes. The FOMC’s new statement from Wednesday declared, “In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.” And thus the long-feared QT era is now upon us.

The Fed is well aware of how extraordinarily risky quantitative tightening is for QE-inflated stock markets, so it is starting slow. QT is necessary to unwind the vast quantities of bonds purchased since late 2008 via QE. Back in October 2008, the US stock markets experienced their first panic in 101 years. Ironically it was that earlier 1907 panic that led to the Federal Reserve’s creation in 1913 to help prevent future panics.

Technically a stock panic is a 20%+ stock-market plunge within two weeks. The flagship S&P 500 stock index plummeted 25.9% in just 10 trading days leading into early October 2008, which was certainly a panic-grade plunge! The extreme fear generated by that rare anomaly led the Fed itself to panic, fearing a new depression driven by the wealth effect. When stocks plummet, people get scared and slash their spending.

That’s a big problem for the US economy over 2/3rds driven by consumer spending, and could become self-reinforcing and snowball. The more stocks plunge, the more fearful people become for their own financial futures. They extrapolate the stock carnage continuing indefinitely and pull in their horns. The less they spend, the more corporate profits fall. So corporations lay off people exacerbating the slowdown.

The Fed slashed its benchmark federal-funds interest rate like mad, hammering it to zero in December 2008. That totally exhausted the conventional monetary policy used to boost the economy, rate cuts. So the Fed moved into dangerous new territory of debt monetization. It conjured new money out of thin air to buy bonds, injecting that new cash into the real economy. That was euphemistically called quantitative easing.

The Fed vehemently insisted it wasn’t monetizing bonds because QE would only be a temporary crisis measure. That proved one of the biggest central-bank lies ever, which is saying a lot. When the Fed buys bonds, they accumulate on its balance sheet. Over the next 6.7 years, that rocketed a staggering 427% higher from $849b before the stock panic to a $4474b peak in February 2015! That was $3625b of QE.

While the new QE bond buying formally ended in October 2014 when the Fed fully tapered QE3, that $3.6t of monetized bonds remained on the Fed’s balance sheet. As of the latest-available data from last week, the Fed’s BS was still $4417b. That means 98.4% of all the Fed’s entire colossal QE binge from late 2008 to late 2014 remains intact! That vast deluge of new money created remains out in the economy.

Don’t let the complacent stock-market reaction this week fool you, quantitative tightening is a huge deal. It’s the biggest market game-changer by far since QE’s dawn! Starting to reverse QE via QT radically alters market dynamics going forward. Like a freight train just starting to move, it doesn’t look scary to traders yet. But once that QT train gets barreling at full speed, it’s going to be a havoc-wreaking juggernaut.

QT will start small in the imminent Q4’17, with the Fed allowing $10b per month of maturing bonds to roll off its books. The reason the Fed’s QE-bloated balance sheet has remained so large is the Fed is reinvesting proceeds from maturing bonds into new bonds to keep that QE-conjured cash deployed in the real economy. QT will slowly taper that reinvestment, effectively destroying some of the QE-injected money.

These monthly bond rolloffs will start at $6b in Treasuries and $4b in mortgage-backed securities. Then the Fed will raise those monthly caps by these same amounts once a quarter for a year. Thus over the next year, QT’s pace will gradually mount to its full-steam speed of $30b and $20b of monthly rolloffs in Treasuries and MBS bonds. The FOMC just unleashed a QT juggernaut that’s going to run at $50b per month!

When this idea was initially floated back in mid-June, it was far more aggressive than anyone thought the Yellen Fed would ever risk. $50b per month yields a jaw-dropping quantitative-tightening pace of $600b per year! These complacent stock markets’ beliefs that such massive monetary destruction won’t affect them materially is ludicrously foolish. QT will naturally unwind and reverse the market impact of QE

This hyper-easy Fed is only hiking interest rates and undertaking QT for one critical reason. It knows the next financial-market crisis is inevitable at some point in the future, so it wants to reload rate-cutting and bond-buying ammunition to be ready for it. The higher the Fed can raise its federal-funds rate, and the lower it can shrink its bloated balance sheet, the more easing firepower it will have available in the future.

But QT has never before been attempted and is extremely risky for these QE-levitated stock markets. So the Fed is attempting to thread the needle between preparing for the next market crisis and triggering it. Yellen and top Fed officials have been crystal-clear that they have no intention of fully unwinding all the QE since late 2008. Wall Street expectations are running for a half unwind of the $3.6t, or $1.8t of total QT.

At the full-speed $600b-per-year QT pace coming in late 2018, that would take 3 years to execute. The coming-year ramp-up will make it take longer. So these markets are likely in for fierce QT headwinds for several years or so. At this week’s post-FOMC-decision press conference, Janet Yellen took great pains to explain the FOMC has no intentions of altering this QT-pacing plan unless there is some market calamity.

Yellen was also more certain than I’ve ever heard her on any policy decisions that this terminal $50b-per-month QT won’t need to be adjusted. With QT now officially started, the FOMC is fully committed. If it decides to slow QT at some future meeting in response to a stock selloff, it risks sending a big signal of no confidence in the economy and exacerbating that very selloff! Like a freight train, QT is hard to stop.

With stock markets at all-time record highs this week, QT’s advent seems like no big deal to euphoric stock traders. They are dreadfully wrong. CNBC’s inimitable Rick Santelli had a great analogy of this. Just hearing a hurricane is coming is radically different than actually living through one. QT isn’t feared because it isn’t here and hasn’t affected markets yet. But once it arrives and does, psychology will really change.

Make no mistake, quantitative tightening is extremely bearish for these QE-inflated stock markets. Back in late July I argued this bearish case in depth. QT is every bit as bearish for stocks as QE was bullish! This first chart updated from that earlier essay shows why. This is the scariest and most-damning chart in all the stock markets. It simply superimposes that S&P 500 benchmark stock index over the Fed’s balance sheet.

Between March 2009 and this week’s Fed Day, the S&P 500 has powered an epic 270.8% higher in 8.5 years! That makes it the third-largest and second-longest stock bull in US history. Why did that happen? The underlying US economy sure hasn’t been great, plodding along at 2%ish growth ever since the stock panic. That sluggish economic growth has constrained corporate-earnings growth too, it’s been modest at best.

Stocks are exceedingly expensive too, with their highest valuations ever witnessed outside of the extreme bull-market toppings in 1929 and 2000. The elite S&P 500 component companies exited August with an average trailing-twelve-month price-to-earnings ratio of 28.1x! That’s literally in formal bubble territory at 28x, which is double the 14x century-and-a-quarter fair value. Cheap stocks didn’t drive most of this bull.

And if this bull’s gargantuan gains weren’t the product of normal bull-market fundamentals, that leaves quantitative easing. A large fraction of that $3.6t of money conjured out of thin air by the Fed to inject into the economy found its way into the US stock markets. Note above how closely this entire stock bull mirrored the growth in the Fed’s total balance sheet. The blue and orange lines above are closely intertwined.

Those vast QE money injections levitated stock markets through two simple mechanisms. The massive and wildly-unprecedented Fed bond buying forced interest rates to extreme artificial lows. That bullied traditional bond investors seeking income from yields into far-riskier dividend-paying stocks. Super-low interest rates also served as a rationalization for historically-expensive P/E ratios rampant across the stock markets.

While QE directly lifted stocks by sucking investment capital out of bonds newly saddled with record-low yields, a secondary indirect QE impact proved more important. US corporations took advantage of the Fed-manipulated extreme interest-rate lows to borrow aggressively. But instead of investing all this easy cheap capital into growing their businesses and creating jobs, they squandered most of it on stock buybacks.

QE’s super-low borrowing costs fueled a stock-buyback binge vastly greater than anything seen before in world history. Literally trillions of dollars were borrowed by elite S&P 500 US corporations to repurchase their own shares! This was naked financial manipulation, boosting stock prices through higher demand while reducing shares outstanding. That made corporate earnings look much more favorable on a per-share basis.

Incredibly QE-fueled corporate stock buybacks have proven the only net source of stock-market capital inflows in this entire bull market since March 2009! Elite Wall Street banks have published many studies on this. Without that debt-funded stock-buyback frenzy only possible through QE’s record-low borrowing rates, this massive near-record bull wouldn’t even exist. Corporations were the only buyers of their stocks.

QE’s dominating influence on stock prices is unassailable. The S&P 500 surged in its early bull years until QE1 ended in mid-2010, when it suffered its first major correction. The Fed panicked again, fearing another plunge. So it birthed and soon expanded QE2 in late 2010. Again the stock markets surged on a trajectory perfectly paralleling the Fed’s balance-sheet growth. But stocks plunged when QE2 ended in mid-2011.

The S&P 500 fell 19.4% over the next 5.2 months, a major correction that neared bear-market territory. The Fed again feared a cascading negative wealth effect, so it launched Operation Twist in late 2011 to turn stock markets around. That converted short-term Treasuries to long-term Treasuries, forcing long rates even lower. As the stock markets started topping again in late 2012, the Fed went all out with QE3.

QE3 was radically different from QE1 and QE2 in that it was totally open-ended. Unlike its predecessors, QE3 had no predetermined size or duration! So stock traders couldn’t anticipate when QE3 would end or how big it would get. Stock markets surged on QE3’s announcement and subsequent expansion a few months later. Fed officials started to deftly use QE3’s inherent ambiguity to herd stock traders’ psychology.

Whenever the stock markets started to sell off, Fed officials would rush to their soapboxes to reassure traders that QE3 could be expanded anytime if necessary. Those implicit promises of central-bank intervention quickly truncated all nascent selloffs before they could reach correction territory. Traders realized that the Fed was effectively backstopping the stock markets! So greed flourished unchecked by corrections.

This stock bull went from normal between 2009 to 2012 to literally central-bank conjured from 2013 on. The Fed’s QE3-expansion promises so enthralled traders that the S&P 500 went an astounding 3.6 years without a correction between late 2011 to mid-2015, one of the longest-such spans ever! With the Fed jawboning negating healthy sentiment-rebalancing corrections, psychology grew ever more greedy and complacent.

QE3 was finally wound down in late 2014, leading to this Fed-conjured stock bull stalling out. Without central-bank money printing behind it, the stock-market levitation between 2013 to 2015 never would have happened! Without more QE to keep inflating stocks, the S&P 500 ground sideways and started topping. Corrections resumed in mid-2015 and early 2016 without the promise of more Fed QE to avert them.

In mid-2016 the stock markets were able to break out to new highs, but only because the UK’s surprise pro-Brexit vote fueled hopes of more global central-bank easing. The subsequent extreme Trumphoria rally since the election was an incredible anomaly driven by euphoric hopes for big tax cuts soon from the newly-Republican-controlled government. But Republican infighting is making that look increasingly unlikely.

The critical takeaway of the entire QE era since late 2008 is that stock-market action closely mirrored whatever the Fed was doing. Ex-Trumphoria, all this bull’s massive stock-market gains happened when the Fed was actively injecting trillions of dollars of QE. When the Fed paused its balance-sheet growth, the stock markets either corrected hard or stalled out. These stock markets are extraordinarily QE-dependent.

The Fed’s balance sheet has never materially shrunk since QE was born out of that 2008 stock panic. Now quantitative tightening will start ramping up in just a couple weeks for the first time ever. If QE is responsible for much of this stock bull, and certainly all of the extreme levitation from 2013 to 2015 due to the open-ended QE3, can QT possibly be benign? No freaking way friends! Unwinding QE is this bull’s death knell.

QE was like monetary steroids for stocks, artificially ballooning this bull market to monstrous proportions. Letting bonds run off the Fed’s balance sheet instead of reinvesting effectively destroys that QE-spawned money. QE made this bull the grotesque beast it is, so QT is going to hammer a stake right through its heart. This unprecedented QT is even more dangerous given today’s bubble valuations and rampant euphoria.

Investors and speculators alike should be terrified of $600b per year of quantitative tightening! The way to play it is to pare down overweight stock positions and build cash to prepare for the long-overdue Fed-delayed bear market. Speculators can also buy puts in the leading SPY SPDR S&P 500 ETF. Investors can go long gold via its own flagship GLD SPDR Gold Shares ETF, which tends to move counter to stock markets.

Gold was hit fairly hard after this week’s FOMC decision announcing QT, which makes it look like QT is bearish for gold. Nothing could be farther from the truth. Gold’s post-Fed selloff had nothing at all to do with QT! At every other FOMC meeting, the Fed also releases a summary of top Fed officials’ outlooks for future federal-funds-rate levels. This so-called dot plot was widely expected to be more dovish than June’s.

Yellen herself had given speeches in the quarter since that implied this Fed-rate-hike cycle was closer to its end than beginning. She had said the neutral federal-funds rate was lower than in the past, so gold-futures speculators expected this week’s dot plot to be revised lower. It wasn’t, coming in unchanged from June’s with 3/4ths of FOMC members still expecting another rate hike at the FOMC’s mid-December meeting.

This dot-plot hawkish surprise totally unrelated to QT led to big US-dollar buying. Futures-implied rate-hike odds in December surged from 58% the day before to 73% in the wake of the FOMC’s decision. So gold-futures speculators aggressively dumped contracts, forcing gold lower. That reaction is irrational, as gold has surged dramatically on average in past Fed-rate-hike cycles! QT didn’t play into this week’s gold selloff.

This last chart superimposes gold over that same Fed balance sheet of the QE era. Gold skyrocketed during QE1 and QE2, which makes sense since debt monetizations are pure inflation. But once the open-ended QE3 started miraculously levitating stock markets in early 2013, investors abandoned gold to chase those Fed-conjured stock-market gains. That blasted gold into a massive record-setting bear market.

In a normal world, quantitative easing would always be bullish for gold as more money is injected into the economy. Gold’s monetary value largely derives from the fact its supply grows slowly, under 1% a year. That’s far slower than money supplies grow normally, let alone during QE inflation. Gold’s price rallies as relatively more money is available to compete for relatively less physical gold. QE3 broke that historical relationship.

With the Fed hellbent on ensuring the US stock markets did nothing but rally indefinitely, investors felt no need for prudently diversifying their portfolios with alternative investments. Gold is the anti-stock trade, it tends to move counter to stock markets. So why bother with gold when QE3 was magically levitating the stock markets from 2013 to 2015? That QE3-stock-levitation-driven gold bear finally bottomed in late 2015.

Today’s gold bull was born the very next day after the Fed’s first rate hike in 9.5 years in mid-December 2015. If Fed rate hikes are as bearish for gold as futures speculators assume, why has gold’s 23.7% bull as of this week exceeded the S&P 500’s 22.8% gain over that same span? Not even the Trumphoria rally has enabled stock markets to catch up with gold’s young bull! Fed rate hikes are actually bullish for gold.

The reason is hiking cycles weigh on stock markets, which gets investors interested in owning counter-moving gold to re-diversity their portfolios. That’s also why this new QT era is actually super-bullish for gold despite the coming monetary destruction. As QT gradually crushes these fake QE-inflated stock markets in coming years, gold investment demand is going to soar again. We’ll see a reversal of 2013’s action.

That year alone gold plunged a colossal 27.9% on the extreme 29.6% S&P 500 rally driven by $1107b of fresh quantitative easing from the massive new QE3 campaign! That 2013 gold catastrophe courtesy of the Fed bred the bearish psychology that’s plagued this leading alternative asset ever since. At QT’s $600b planned annual pace, it will take almost a couple years to unwind that epic $1.1t QE seen in 2013 alone.

Interestingly the Wall-Street-expected $1.8t of total QT coming would take the Fed’s balance sheet back down to $2.6t. That’s back to mid-2011 levels, below the $2.8t in late 2012 when QE3 was announced. Gold averaged $1573 per ounce in 2011, and it ought to head much higher if QT indeed spawns the next stock bear. That’s the core bullish-gold thesis of QT, that falling stock prices far outweigh monetary destruction.

Stock bears are normal and necessary to bleed off excessive valuations, but they are devastating to the unprepared. The last two ending in October 2002 and March 2009 ultimately hammered the S&P 500 49.1% and 56.8% lower over 2.6 and 1.4 years! If these lofty QE-levitated stock markets suffer another typical 50% bear during QT, huge gold investment demand will almost certainly catapult it to new record highs.

These QE-inflated stock markets are doomed under QT, there’s no doubt. The Fed giveth and the Fed taketh away. Stock bears gradually unfold over a couple years or so, slowly boiling the bullish frogs. So without a panic-type plunge, the tightening Fed is going to be hard-pressed to throttle back QT without igniting a crisis of confidence. As QT slowly strangles this monstrous stock bull, gold will really return to vogue.

The key to thriving and multiplying your fortune in bull and bear markets alike is staying informed, about broader markets and individual stocks. That’s long been our specialty at Zeal. My decades of experience both intensely studying the markets and actively trading them as a contrarian is priceless and impossible to replicate. I share my vast experience, knowledge, wisdom, and ongoing research in our popular newsletters.

Published weekly and monthly, they explain what’s going on in the markets, why, and how to trade them with specific stocks. They are a great way to stay abreast, easy to read and affordable. Walking the contrarian walk is very profitable. As of the end of Q2, we’ve recommended and realized 951 newsletter stock trades since 2001. Their average annualized realized gain including all losers is +21.2%! That’s hard to beat over such a long span. Subscribe today and get invested before QT’s market impacts are felt!

The bottom line is the coming quantitative tightening is incredibly bearish for these stock markets that have been artificially levitated by quantitative easing. QT has never before been attempted, let alone in artificial QE-inflated stock markets trading at bubble valuations and drenched in euphoria. All the stock-bullish tailwinds from years of QE will reverse into fierce headwinds under QT. It truly changes everything.

The main beneficiary of stock-market weakness is gold, as the leading alternative investment that tends to move counter to stock markets. The coming QT-driven overdue stock bear will fuel a big renaissance in gold investment to diversify stock-heavy portfolios. And the Fed can’t risk slowing or stopping QT now that it’s officially triggered. The resulting crisis of confidence would likely exacerbate a major stock-market selloff.

By Adam Hamilton


Adam Hamilton

Adam Hamilton, CPA
Zeal LLC.com

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Published at Fri, 22 Sep 2017 09:26:41 +0000

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Yellen Rambles Dollar Scrambles

 

Yellen Rambles Dollar Scrambles

by THE MOLE

I’ve earned myself a few hours reprieve of playing Valencia tour guide and may even be able to hit the gym to work off a few of those greasy restaurant food calories. But it seems you guys were in dire need of a comment cleaner, so here’s a quick USD update after yesterday’s big central bank triathlon.

2017-09-21_DX

Judging by the Dollar’s tepid bounce I don’t seem to be alone in having been left a bit confused by chairwoman Yellen’s ramblings. What on the surface appeared to have been the FMOC’s declaration to finally terminate its decade long campaign of quantitative easing for the foreseeable future has however left many questions unanswered. For one the lingo used suggests that the Fed is now switching to a more hawkish stance, but it never misses an opportunity to sneak in its default disclaimer of possible negative surprises in the months ahead. Which pretty much can mean anything or may mean nothing based on who’s is in rotation to vote at the FOMC and who will eventually be chosen to take over for Mrs. Yellen sometime next year.

At any rate, what the market seems to be accepting as fact at the current time is the probability of a rate hike this December, which most likely is the one reason why the greenback has not fallen off the plate just yet. The formation on the monthly panel does support a bounce here followed by a short squeeze. But there seems to be very little bullish sentiment ready to actually kick things into gear. so I’m cautiously optimistic but would not put it past large currency vigilantes to take advantage of the current state of confusion and shake out a few more longs here.

2017-09-21_USDCAD_update

Not surprisingly our USD/CAD campaign is in pretty good shape now but as you can see I for one was merely ticks away from being stopped out in all the confusion yesterday. My stop remains at break/even as this is one of the most promising looking USD campaigns right now and if there is a medium term future for the Dollar then I intend to ride it all the way.

2017-09-21_EURUSD_update

The EUR/USD campaign of course has met its maker at about 1R in profits. Not bad for a pre-FOMC announcement trade and I won’t complain – money in the bank and bills always need to get paid.

2017-09-21_ZB_watch

The ZB is on my watch list and if I wasn’t busy playing tour guide this week I may have risked a small entry here. However it’s probably best to wait until next week in hopes of a more pronounced retest of the 100-day SMA.

One more goodie for my intrepid subs:

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

Alright, that’s it for me – see y’all next week!

Published at Thu, 21 Sep 2017 13:39:04 +0000

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Fed’s Flow of Funds: Household Net Worth increased in Q2

Fed’s Flow of Funds: Household Net Worth increased in Q2

by Bill McBride on 9/21/2017 01:10:00 PM

The Federal Reserve released the Q2 2017 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q2 2017 compared to Q1 2017:

The net worth of households and nonprofits rose to $96.2 trillion during the second quarter of 2017. The value of directly and indirectly held corporate equities increased $1.1 trillion and the value of real estate increased $0.6 trillion.

The Fed estimated that the value of household real estate increased to $23.8 trillion in Q2. The value of household real estate is now above the bubble peak in early 2006 – but not adjusted for inflation, and this also includes new construction.

 

Household Net Worth as Percent of GDPClick on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

Household Percent EquityThis graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q2 2017, household percent equity (of household real estate) was at 58.4% – up from Q2, and the highest since Q1 2006. This was because of an increase in house prices in Q2 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 58.4% equity – and about 2.8 million homeowners still have negative equity.

Household Real Estate Assets Percent GDPThe third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $64 billion in Q2.

Mortgage debt has declined by $1.23 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, was up in Q2, and  is above the average of the last 30 years (excluding bubble).  However, mortgage debt as a percent of GDP, continues to decline.

 

Published at Tue, 19 Sep 2017 14:10:00 +0000

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Wall Street edges higher; U.S. Fed meeting in focus

 

Wall Street edges higher; U.S. Fed meeting in focus

(Reuters) – The three major U.S. stock indexes edged higher on Tuesday, logging closing records, with financial stocks providing the biggest boost a day ahead of the Federal Reserve’s concluding statement from its two-day policy meeting.

The U.S. central bank is expected to announce when it will begin paring its bond holdings, and while a September interest rate increase is not expected, investors will closely study Fed Chair Janet Yellen’s views on inflation for clues whether the Fed will raise rates in December.

“It seems the market is holding its breath and waiting for what the Fed has to say regarding the economy and any future interest rate hikes,” said Ryan Detrick, senior market strategist for LPL Financial.

“The market could throw a little bit of a fit if they push (balance sheet reduction) back. It could hurt financials and the overall market might not like the uncertainty,” he added.

Six of the 11 major S&P sectors closed higher, with the financial sector’s 0.8 percent gain providing the biggest boost. The sector has risen in seven of the last eight sessions, clocking a 6 percent rise in that time.

If the Fed reduces its balance sheet, investors are betting that would lift yields for longer-term treasuries, which could boost bank profits, Detrick said.

The Dow Jones Industrial Average .DJI rose 39.45 points, or 0.18 percent, to 22,370.8, clocking its sixth straight record close. The S&P 500 .SPX gained 2.78 points, or 0.11 percent, to 2,506.65, hitting its fifth record closing high in the last six sessions.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., September 6, 2017. REUTERS/Brendan McDermid

The Nasdaq Composite .IXIC added 6.68 points, or 0.1 percent, to 6,461.32, also squeaking out a record closing high, slightly above its Sept. 13 close.

The biggest percentage gain was the telecom services sector’s .SPLRCL 2.3 percent jump on merger and acquisition speculation.

The biggest U.S. telephone operators, Verizon (VZ.N) and AT&T (T.N), rose more than 2 percent, providing the second- and third-biggest individual stock boosts for the S&P. Shares of smaller wireless carrier T-Mobile (TMUS.O) rose 5.9 percent and Sprint (S.N) jumped 6.8 percent, following a report they were in active merger talks.

The healthcare index .SPXHC was one of the biggest laggards, with declines in insurers such as United Health (UNH.N), which fell 1.8 percent due to the latest efforts in Washington to overhaul Obamacare.

Best Buy (BBY.N) fell 8 percent after the No. 1 U.S. electronics retailer forecast fiscal 2021 adjusted earnings well below Wall Street estimates. The stock was one of the biggest drags on the consumer discretionary index .SPLRCD. Tesla (TSLA.O) fell 2.6 percent after Jefferies started coverage of the electric car maker’s stock with an “underperform” rating.

Advancing issues outnumbered declining ones on the NYSE by a 1.09-to-1 ratio; on Nasdaq, a 1.04-to-1 ratio favored advancers.

About 5.8 billion shares changed hands on U.S. exchanges. That compares with the 5.9 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Additional reporting by Sruthi Shankar in Bengaluru, Caroline Valetkevitch in New York; Editing by Nick Zieminski and Dan Grebler

Our Standards:The Thomson Reuters Trust Principles.

 

Published at Tue, 19 Sep 2017 21:39:53 +0000

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Schedule for Week of Sept 17, 2017

 

Schedule for Week of Sept 17, 2017

by Bill McBride on 9/16/2017 08:09:00 AM

The key economic reports this week are August housing starts and existing home sales.

For manufacturing, the Philly Fed manufacturing survey will be released this week.

The FOMC meets this week and is expected to announce the reduction of the Fed’s balance sheet.

—– Monday, Sept 18th —–

10:00 AM: The September NAHB homebuilder survey. The consensus is for a reading of 65, down from 68 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.
—– Tuesday, Sept 19th —–

Total Housing Starts and Single Family Housing Starts8:30 AM: Housing Starts for August. The consensus is for 1.173 million SAAR, up from the July rate of 1.155 million.This graph shows total and single unit starts since 1968.

The graph shows the huge collapse following the housing bubble, and then – after moving sideways for a couple of years – housing is now recovering.

—– Wednesday, Sept 20th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.During the day: The AIA’s Architecture Billings Index for August (a leading indicator for commercial real estate).

Existing Home Sales10:00 AM: Existing Home Sales for August from the National Association of Realtors (NAR). The consensus is for 5.48 million SAAR, up from 5.44 million in July.

The graph shows existing home sales from 1994 through the report last month.

2:00 PM: FOMC Meeting Announcement. The FOMC is expected to announce the beginning of the process to reduce the Fed’s balance sheet at this meeting.

2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants’ projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.

—– Thursday, Sept 21st —–

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 303 thousand initial claims, up from 284 thousand the previous week.8:30 AM: the Philly Fed manufacturing survey for September. The consensus is for a reading of 18.0, down from 18.9.

9:00 AM ET: FHFA House Price Index for June 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

12:00 PM: Q2 Flow of Funds Accounts of the United States from the Federal Reserve.

—– Friday, Sept 22nd —–

No major economic releases scheduled.

 

Published at Sat, 16 Sep 2017 12:09:00 +0000

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Mid September Momo Update

 

Mid September Momo Update

by THE MOLE

I’m seeing an increasing amount of bearish sentiment here in the comment section as well as across the financial media. Which of course is no big surprise given that we are smack middle in the most negative leaning market phase of the year. However just because a door is open does not necessarily mean the bear is going to walk through it. Let’s not forget that equity indices just painted new record highs all seasonal bias to the contrary.

SPY_weekly_change_stats_b

Seasonal statistics are after all just an exercise in probability based on prior events. If they were immutable then trading would be extremely easy. Very well worth noting also is that the current week (#37) happens to be the third most profitable week of the year. Which then is immediately followed by the second most bearish week of the year.

SPY_monthly_stdev_stats

No wonder September ranks #2 in terms of standard deviation, only beat by October. By the way, if you are interested in pulling exhaustive statistics on almost any Yahoo finance symbol then head over to our new Evil Speculator Seasonal Statistics page. It’s still in beta and thus freely available to everyone.

2017-09-14_VIX_below_11

The VIX has now dropped back below my magic line at 11 and we are getting pretty close to exceeding the late 2006 into early 2007 period (almost 11 years ago – coincidence? probably). Investor confidence in this effervescent bull market remains unshaken and although we do see the occasional cracks any downside action is usually quickly reversed. Let’s talk about that a bit more:

2017-09-14_high_beta_low_beta

Something that caught my attention today was the ratio between high and low beta stocks against the SPX. Traditionally we see high beta stocks lead along with the S&P, but get hit first and very hard when downside finally materializes. It’s what we would expect of course and if something else happens, like it did throughout most of 2017 then we ought to take notice. The cyan field marks a significant portion of the current advance and clearly high beta stocks are either lagging or are outdone by low beta stocks.

2017-09-14_SPX_breadth

As you may have guessed already breadth was of course the very next chart I looked at. Which seems to be in a state of limbo right now as the ratio is pushing into elevated readings but is nowhere near where I would expect a more profound correction. Let’s also point out that the most recent upper threshold breach occurred early this year (after which we are seeing the strange high beta / low beta behavior) which was never followed by a truly meaningful correction.

So it occurred to me that we may be heading into a period resembling that of 2013 through late 2014. I posted this chart on several occasions in the past and my general hypothesis was that it carefully avoided extreme breadth levels for almost two years, thus resulting into a protracted advance higher.

Now let’s look at the VIX term structure for a bit more context on the medium term:

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Published at Thu, 14 Sep 2017 13:54:25 +0000

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Thursday: Unemployment Claims, CPI

 

Thursday: Unemployment Claims, CPI

by Bill McBride on 9/13/2017 06:26:00 PM

Goldman economists on inflation:

The next piece of inflation news is the August CPI report, to be released on Thursday. We expect a 0.20% increase on the core and a 0.36% increase on the headline. Two special factors—a rebound in hotel prices and a price increase by Verizon—account for about 0.05pp of our core forecast.

Looking further ahead with our bottom-up forecasting model, we expect core PCE to round to 1.5% by October, the last core PCE report before the December FOMC meeting, and to reach 1.6% by end-2017 and 1.9% by end-2018. The acceleration in our forecast is driven by (1) pass-through from energy prices and the dollar; (2) declining slack; and (3) the dropping out of earlier idiosyncratic declines that appear unlikely to be repeated next year.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 300 thousand initial claims, up from 298 thousand the previous week.

• Also at 8:30 AM, The Consumer Price Index for August from the BLS. The consensus is for a 0.4% increase in CPI, and a 0.2% increase in core CPI.

Published at Wed, 13 Sep 2017 22:26:00 +0000

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Nordstrom buyout; Apple aftermath; Toshiba’s sale

 

Nordstrom buyout; Apple aftermath; Toshiba’s sale

  @AlannaPetroff

premarket stocks trading futures
Click chart for in-depth premarket data.

1. Nordstrom sale: Shares in Nordstrom(JWN) were surging by about 10% premarket following reports that the company could soon be taken private.

CNBC, citing unnamed sources, said that private equity firm Leonard Green & Partners could partner with the Nordstrom family on a buyout.

The Nordstrom family owns more than 30% of the retailer’s shares. Leonard Green & Partners would reportedly provide roughly $1 billion in equity to help finance the deal.

This comes as the retailer experiments with smaller stores and specialized customer services in an effort to compete with online outlets, including Amazon(AMZN, Tech30).

2. Apple aftermath: Investors will continue to focus on Apple(AAPL, Tech30) after the company unveiled its new iPhone X, iPhone 8 and iPhone 8 Plus on Tuesday.

Shares dipped a tad following the announcement. Futures suggested the stock could drop further when trading starts Wednesday.

The big question: Will consumers pay nearly $1,000 for a phone?

3. Toshiba deals with Bain: Beleaguered tech giant Toshiba(TOSYY) has signed a memorandum of understanding to negotiate a deal to sell its business unit — Toshiba Memory Corporation — to Bain Capital.

Bain Capital is working with a larger consortium on the deal.

Toshiba is trying to recover from billions of dollars in losses stemming from the collapse of Westinghouse Electric, its now bankrupt U.S. nuclear unit.

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4. Global market overview: Global stock markets are looking soft following two days of strong gains.

U.S. stock futures were dipping a bit, alongside many European markets.

Asian markets ended the day with mixed results.

The Dow Jones industrial average, S&P 500 and Nasdaq all gained 0.3% on Tuesday.

5. Earnings and economics:Cracker Barrel(CBRL) will announce earnings before the open on Wednesday.

New data shows the U.K. unemployment rate dropped to 4.3% in the second quarter, its lowest level in more than 40 years.

It’s not all good news: Prices are rising at a faster rate than British wages, meaning workers are feeling poorer.

Download CNN MoneyStream for up-to-the-minute market data and news

6. Coming this week:

Thursday — Bank of England rate decision
Friday — Samsung(SSNLF) releases Galaxy Note 8

 

Published at Wed, 13 Sep 2017 09:25:12 +0000

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Schedule for Week of Sept 10, 2017

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By geralt from Pixabay

Schedule for Week of Sept 10, 2017

by Bill McBride on 9/09/2017 08:11:00 AM

The key economic reports this week are August retail sales and the Consumer Price Index (CPI).

For manufacturing, August industrial production, and the September New York Fed manufacturing survey, will be released this week.

—– Monday, Sept 11th —–

No major economic releases scheduled.
—– Tuesday, Sept 12th —–

6:00 AM ET: NFIB Small Business Optimism Index for August.Job Openings and Labor Turnover Survey10:00 AM: Job Openings and Labor Turnover Survey for July from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased in June to 6.163 million from 5.702 in May.  This was the highest number of job openings since this series started in December 2000.

The number of job openings (yellow) were up 11% year-over-year, and Quits were up 5% year-over-year.

—– Wednesday, Sept 13th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.8:30 AM: The Producer Price Index for August from the BLS. The consensus is a 0.13% increase in PPI, and a 0.2% increase in core PPI.

—– Thursday, Sept 14th —–

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 300 thousand initial claims, up from 298 thousand the previous week.8:30 AM: The Consumer Price Index for August from the BLS. The consensus is for a 0.4% increase in CPI, and a 0.2% increase in core CPI.

—– Friday, Sept 15th —–

Retail Sales 8:30 AM ET: Retail sales for August be released.  The consensus is for a 0.1% increase in retail sales.This graph shows retail sales since 1992 through July 2017.

8:30 AM: The New York Fed Empire State manufacturing survey for September. The consensus is for a reading of 19.0, down from 25.2.

Industrial Production9:15 AM: The Fed will release Industrial Production and Capacity Utilization for August.

This graph shows industrial production since 1967.

The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to increase to 76.8%.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for July.  The consensus is for a 0.2% increase in inventories.

10:00 AM: University of Michigan’s Consumer sentiment index (preliminary for September). The consensus is for a reading of 96.0, down from 96.8 in August.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for August 2017

 

Published at Sat, 09 Sep 2017 12:11:00 +0000

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Update: Framing Lumber Prices Up Year-over-year

 

Update: Framing Lumber Prices Up Year-over-year

by Bill McBride on 9/07/2017 11:36:00 AM

Here is another update on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs – and prices are once again near the bubble highs.

The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).

Prices didn’t increase as much early in 2014 (more supply, smaller “surge” in demand).

In 2015, even with the pickup in U.S. housing starts, prices were down year-over-year.  Note: Multifamily starts do not use as much lumber as single family starts, and there was a surge in multi-family starts.  This decline in 2015 was also probably related to weakness in China.

Lumcber PricesClick on graph for larger image in graph gallery.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through early Sept 2017 (via NAHB), and 2) CME framing futures.

Prices in 2017 are up solidly year-over-year and might approach or exceed the housing bubble highs in the Spring of 2018.

Right now Random Lengths prices are up 15% from a year ago, and CME futures are up about 25% year-over-year.

There is a seasonal pattern for lumber prices. Prices frequently peak around May, and bottom around October or November – although there is quite a bit of seasonal variability.

 

Published at Thu, 07 Sep 2017 15:36:00 +0000

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Column: Report card on aging nations gives U.S. mixed grades

 

Column: Report card on aging nations gives U.S. mixed grades

CHICAGO (Reuters) – Which nations are doing the best job adapting to their aging populations?

Japan has the healthiest seniors. Spain gets top marks for supportive relatives and friends. In Norway, income inequality among older people is the lowest in the world.

How about the United States?

A new global aging index places it among the top five nations, alongside Norway, Sweden, the Netherlands and Japan. But our performance in most of the index categories suggests much work remains.

The Hartford Index, funded by The John A. Hartford Foundation, was developed by researchers at Columbia University and the University of Southern California. Previous studies comparing retirement across nations have focused mainly on economic and financial measures. But this one takes a wide view, examining data for 30 countries in five areas: productivity and engagement, well-being, equity, cohesion and security.

The categories are important to consider – they reflect the researchers’ consensus on the factors that contribute to a successful environment for aging.

“There are many elements beyond economic measures that are important,” said Dr. John Rowe, a professor at the Columbia University school of public health who led the research team.

The United States, despite ranking in the top five, receives decidedly mixed grades. It ranks No. 1 for “productivity and engagement,” which considers labor force participation rates, effective retirement ages and time spent volunteering.

We also get good marks for strong relationships among generations. But our rankings are mediocre-to-poor in categories measuring health, financial security and income inequality.

LENS INTO THE FUTURE

The index offers a lens into the future, Rowe says, because European countries are further along the aging curve. “After World War II the U.S. had a baby boom, but western Europe had a baby bust – fertility rates fell sharply because their economies were weak while countries worked to recover from the war,” he said. As a result, Europe aged ahead of the United States.

The U.S. Census Bureau reports that the U.S. 65-and-over population will nearly double over the next three decades, from 48 million to 88 million by 2050. But worldwide, the older population will more than double, to 1.6 billion by 2050 – and the U.S. population will stay younger than in other countries. The largest share of older people will be in Japan, South Korea, Hong Kong and Taiwan in 2050, according to the bureau.

The Hartford index performance on financial security is especially worrisome. The United States ranks 19th among 30 countries in this category, which looks primarily at income of the 65-plus population. It uses a straightforward measure called poverty risk – the share of a nation’s older population below a certain income threshold. For example, if a country’s median income is $40,000, a senior with income of $20,000 would be considered impoverished.

It also assesses food security – the proportion of older people who are able to buy the food they need. Top performers were Luxembourg, the Netherlands and Spain.

The index ranks the United States 16th for well-being – an important gauge of health, not just from the perspective of longevity, but healthy life expectancy, as calculated by the average number of years a person age 65 can expect to live without disability.

“What’s important is adding life to years, not years to life,” Rowe says. “Policies that are embedded in good health-care systems on prevention and geriatrically competent care will decrease disability rates.”

Top performers in this category, along with Japan, are Switzerland, Australia, Canada, New Zealand and France.

On equity, a measure of the gaps in well-being and economic security between the haves and have-nots, the United States ranks 21st, reflecting wider U.S. income inequality compared with other countries.

The United States scores better for cohesion, which aims to measure tension across generations, and social connectedness. We rank fifth in this category, reflecting the number of people who report having relatives or friends they can count on, the percent of people who say they trust their neighbors and intergenerational wealth transfers.

Most encouraging is the U.S. performance on productivity and engagement. Our workers are staying on the job longer and finding volunteer opportunities at higher rates than in many western European nations.

We could do even better in this category. Efforts to engage older Americans for a range of volunteer efforts are gaining ground (reut.rs/2w3epzD), but need greater support.

“We may be doing better than other countries on volunteering, but we haven’t done as well as we could,” says Rowe.

Editing by Lauren Young and Dan Grebler

 

Published at Thu, 07 Sep 2017 16:35:05 +0000

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Debt ceiling; ECB meeting; Barnes and Noble earnings

 

Debt ceiling; ECB meeting; Barnes and Noble earnings

  @ivanakottasova

premarket thursday
Click chart for more in-depth data.

1. Debt ceiling deal: President Trump has sided with Democrats to support a deal that would ensure passage of disaster relief funding as well as raising the debt ceiling and continuing to fund the government.

The measure will keep the government open through the end of December, setting up a hugely complicated year end crush of must-pass items.

But the immediate threat of breaching the debt ceiling would be lifted.

Investors reacted by sending yields on Treasury bonds maturing in October lower, which those maturing in December spiked.

2. ECB decision day: The European Central Bank’s governing council is meeting Thursday to decide on monetary policy.

The central bank may also discuss how it plans to wind down its stimulus program, which includes €60 billion ($72 billion) in bond purchases each month.

The euro, meanwhile, is having a killer year, strengthening 13% against the dollar. It was trading 0.2% higher on Thursday at just below $1.19.

3. Global market overview:U.S. stock futures were lower on Thursday.

European markets opened mixed, following a tough trading session in Asia.

The Dow Jones industrial average, the S&P 500 and the Nasdaq all closed 0.3% higher on Wednesday.

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4. Earnings and economics:Barnes & Noble(BKS) will release earnings before the opening bell.

The company’s sales have suffered in recent years as Amazon(AMZN, Tech30) lured shoppers away from brick and mortar stores.

The weekly U.S. crude inventories report is set to be released at 11 a.m. ET. It will give an indication of the impact storm Harvey had on the energy market.

Several key refineries and production facilities closed because of the storm, including the two largest in the country.

Another major hurricane — Irma — is now barreling down on Florida.

Download CNN MoneyStream for up-to-the-minute market data and news

5. Coming this week:

Thursday — ECB monetary policy meeting; Barnes & Noble results; Crude inventories report
Friday — Kroger reports earnings

 

Published at Thu, 07 Sep 2017 08:57:49 +0000

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End Of Summer MOMO Update

 

End Of Summer MOMO Update

by THE MOLE

Labor Day is behind us which pretty much marks the end of the summer season and, fortunately for us, the time when many traders and investors return from hibernation. Even here at the evil lair I’m seeing a distinct uptick in new subscriptions after Labor Day and fortunately many of them happen to be familiar faces. Welcome back!

If you haven’t been here for a few months then you may be happy to learn that the Mole has been working his butt off all summer and will be introducing new exciting additions to Evil Speculator over the coming weeks and months. But now, as promised yesterday, it is again time to take another gander at the market momo and volatility front.

2017-09-06_NYA50R_NYA200R

Let’s kick things off with market breadth expressed here by the ratio between NYSE stocks trading > their 50 SMA vs the ones trading > their 200 SMA. I’m sure you’re getting the general idea here which revolves around the underlying health of a market. Are indices mainly advancing courtesy of a small number of strong leaders or does the entire market exhibit strength (or weakness)?

As you can see the signal gyrates around quite a bit and it actually took me a while to figure out the proper thresholds which seemed to have meaning. What I settled on in the end were the 1.0 and 0.7 threshold – the rules are explained on the chart so I won’t be regurgitating them again.

What’s a bit puzzling to me right now is that the signal did actually not drop below the 0.7 threshold during last month’s lows. Which means that we didn’t get a true buy signal here on the recovery higher and that in turn leaves a small chance that we are still actually in a larger long term correction. The only thing that disqualifies that scenario would be a) a push to new all time highs or b) a push > the 1.0 threshold on the chart above.

2017-09-06_SPXA50_SPXA200

The SPXA50:SPXA200 ratio is obviously related to the previous chart but only factors in S&P 500 stocks. Frankly this is the most bearish momo chart I came across and as it’s not confirmed by any others just yet I’m going to withhold judgment. However should the SPX experience renewed weakness then this is may be a chart to watch, especially if the signal drops through the 0.65 mark again, which could lead us lower. But for now I’m taking it with a few grains of salt.

There’s another aspect to the current formation. Some of you may remember this chart from before and I have often used it as a handy prop when trying to show how ruthlessly efficient the relentless bull market between 2013 and 2014 advanced higher without ever triggering the upper threshold. So this bodes the question as to whether we may be inside yet another effervescent phase of this never ending generational bull market. Hey, if the bulls make it to 15 years then it’s officially one generation if I’m not mistaken.

2017-09-06_CPCE_deluxe2

The CPCE is issued by the CBOE and refers to the ratio of put and call options in their exchange. The way I’m using it is a bit unorthodox but it has worked pretty well for us over the years, especially when it comes to long reversals. Once again I’ve got a bit of a head scratcher here as it recently pushed > the upper 1.0 (bearish) threshold (by a mere hair) and then dropped back down immediately. I guess technically speaking that is a bearish reversal signal but let’s keep in mind that even the real confirmed ones have not worked that well in recent history.

2017-09-06_CPCE

On the long side however we seem to have ourselves a pretty nifty long signal here. That push > the lower Bollinger was the right moment to be long. Which of course is what we did if you recall.

Well, I’d love to give it all away but those servers and lap dances don’t pay for themselves. If you’re not a member then sign up right now as you definitely don’t want to miss out on my volatility charts!

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Published at Wed, 06 Sep 2017 14:46:43 +0000

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Trade Deficit at $43.7 Billion in July

 

Trade Deficit at $43.7 Billion in July

by Bill McBride on 9/06/2017 08:43:00 AM

From the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $43.7 billion in July, up $0.1 billion from $43.5 billion in June, revised. July exports were $194.4 billion, $0.6 billion less than June exports. July imports were $238.1 billion, $0.4 billion less than June imports.

U.S. Trade Exports ImportsClick on graph for larger image.

Imports and exports decreased in June.

Exports are 18% above the pre-recession peak and up 5% compared to July 2016; imports are 3% above the pre-recession peak, and up 5% compared to June 2016.

In general, trade has been picking up.

The second graph shows the U.S. trade deficit, with and without petroleum.

U.S. Trade Deficit The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $43.20 in July, down from $44.68 in June, and up from $41.02 in July 2016.  The petroleum deficit had been declining for years – and is the major reason the overall deficit has mostly moved sideways since early 2012.

The trade deficit with China increased to $35.6 billion in July, from $30.3 billion in July 2016.

Published at Wed, 06 Sep 2017 12:43:00 +0000

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If world is drifting apart, it isn’t happening in economic growth: James Saft

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If world is drifting apart, it isn’t happening in economic growth: James Saft

(Reuters) – If the world becoming less economically integrated, someone is going to have to explain why growth around the world is so remarkably consistent and tightly correlated.

It isn’t just that all 45 OECD countries are growing together for the first time since 2007, but that the level of growth around the world is as similar as its been in a long time. Growth levels among the Group of 10 wealthy nations are as tightly clustered – meaning rates of growth are similar – since at least 1991, and among 21 countries, large European Union countries’ growth figures are as tightly packed as they’ve been since at least 1997.

It also isn’t that growth is particularly rapid: the IMF is forecasting 3.5 percent, an improvement on last year’s 3.1 percent and well below the kinds of figures that usually prevailed in the last century. But wherever this tide is coming from, it is truly lifting all boats.

That’s remarkable for a number of reasons. There has been a widespread expectation that a period of de-globalization in which the world became less tightly knit would be part of the bitter fruit of the great financial crisis.

That idea is partly borne out by trade and financing statistics, as well as some striking political realities. The world’s most powerful man, Donald Trump, is an economic nationalist who at least talks the talk of capturing more of the pie rather than growing it through greater integration. At the same time, Britain, one of the principal leaders, for good or ill, of globalization over the past several hundred years is in the process of ham-handedly attempting to work out its divorce from the European Union.

Yet here we are, despite disparate demographic pressures and slowly rising U.S. interest rates, with virtually the entire planet in synchrony.

“The key theme in the financial world is the remarkably synchronous economic recovery across different regions and sectors, with muted inflationary pressures: not only are most parts of the world growing, but the dispersion in economic performances is remarkably low, compared to history,” Stephen Jen of hedge fund SLJ Capital wrote to clients.

Jen argues that this is in part the result of China’s new eminence.

“For the first time since China became big enough to be considered the ‘second sun in our solar system,’ its growth has been in synch with that of the U.S. If both the U.S. and China enjoy strong expansions, it would be difficult for any economy not to enjoy the growth beta,” he writes.

ANOTHER GREAT MODERATION?

One of the supposedly discredited theories popular before the financial crisis was the idea of the “Great Moderation,” a new predictability in U.S. economic growth supposedly produced by better fiscal and monetary management. While the global economy did erupt violently in the last decade, a 2014 research piece from the Federal Reserve concluded that low economic volatility would become the norm, punctuated by periods of high volatility. (here)

It may be that the coordinated growth globally is the result of the relative uniformity of supportive monetary policies put into place and more or less maintained since the crisis. On that view it is possible that a change of gears by one important central bank or another might upset things, perhaps if the Fed actually carries through with normalizing interest rates.

It is also possible that synchronized monetary policy is supporting growth even as the process of de-globalization gathers steam. De-globalization isn’t just the result of destructive populist urges; part of the argument was that individual nations needed better control over the financial systems, which they backstopped with their taxes, but which were highly inter-related.

There is good evidence that globalization is slowing, if not reversing. Global trade is forecast to grow about 2.4 percent this year, well below overall economic growth. Between 1950 and 2008, global trade grew at three times the rate of the global economy, reflecting the post-war expansion and the eventual integration of China and the Soviet bloc.

Cross-border claims among banks, another good indicator of economic globalization, have oscillated at around zero percent growth for much of the post-crisis period, a stark contrast to their previous robust expansion.

Can the great moderation in globally synchronized growth last? For a time, yes, but as with the great moderation in the United States, volatility may in the end have been suppressed, and not extinguished, by policy.

(James Saft is a Reuters columnist. The opinions expressed are his own)

Editing by Dan Grebler

Our Standards:The Thomson Reuters Trust Principles.

 

Published at Tue, 05 Sep 2017 23:23:56 +0000

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Why the Bull Market May Last Until 2018

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Why the Bull Market May Last Until 2018

By Mark Kolakowski | September 5, 2017 — 2:15 PM EDT

The bull market in stocks is still alive and kicking and is likely to extend into 2018. But the bull’s final charge won’t be pretty, according to Doug Ramsey, chief investment officer at Minneapolis-based Leuthold Group, as reported by Barron’s. Stocks are likely to face huge volatility as they stage one last rally before year-end and then stumble badly, falling at least 25% in 2018, he predicts. Investors should expect a correction in the next few months, a market drop of up to 10 percent, before the bull’s last-gasp rally and final plunge.

Leuthold publishes widely-read studies on the markets.

One Final Bull Run

“If a number of different valuation metrics were to return to their 60-year median, since the S&Ps inception in 1957, that would imply a drop in the S&P 500 to 1750, or about 25%,” Ramsey told Barron’s. A market technician, he notes that years ending in “7” tend to have a “strong downward bias” in the August to November period. He believes that a pullback of 6% to 8% in the S&P 500 Index (SPX) is already underway, and that the Russell 2000 Index could drop by 13% to 14%. After rebounding to new highs later in the fall, he expects the S&P 500 to close 2017 in the range of 2550 to 2600.

Betting on Technology

In recent weeks, Leuthold has reduced its maximum net equity exposure to 57%, Ramsey says in Barron’s August 26 story. His company, he indicates, has its biggest bets in technology, particularly semiconductor equipment, data processors, IT consulting, and electronic manufacturing services. However, his firm does not own the FANG stocks, which are Facebook Inc. (FB), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX), and Google parent Alphabet Inc. (GOOGL). They do not believe that tech sector valuations are out of hand, even including the FANGs, and see a positive in the fact that the price to cash flow ratio for the S&P tech sector has been virtually unchanged over the past four years, at a value of about 15.

Bull Market Top in 2018

The great bull market will end sometime in 2018, Ramsey predicts, but he won’t speculate on when the top will be reached. Current negative indicators that he cites include a slowdown in the auto market, a cyclical peak that’s approaching in single-family housing, and a slowdown in annual nonfarm payroll employment growth, which normally precedes the onset of a recession within 12 months.

After experiencing negative real, inflation-adjusted, interest rates for eight of the last nine years, he expects that “the level at which rates begin to bite might be lower than commonly believed.” Thus, if yields on the 10-Year Treasury note rise to 3% or 3.5%, he believes that income-oriented investors might begin selling high-yielding stocks, whereas bond yields of 5.5% to 6% would have been necessary in the past to prompt a similar exit from equities.

Inescapable Investment Math

Based on market history going all the way back to 1880, a theoretic balanced portfolio that has been 60% in S&P 500 stocks and 40% in 10-Year U.S. Treasury Notes has produced an average annualized return of 8%, Ramsey says, noting that this is a common target for pension funds. In turn, that 8% breaks down into 4.1% from dividend and interest income, and 3.9% from capital appreciation, he adds. Today, however, “a record combined overvaluation” of both stocks and bonds mean that a 60/40 equity/debt portfolio is yielding only about 2.1% today. “That is inescapable investment math that challenges the bulls,” he asserts, forecasting that investors will struggle to generate an average annual return of 3% to 4% over the next ten years for such a balanced portfolio.

Meanwhile, billionaire investor Warren Buffett remains positive on the equity markets. He believes that stock valuations, though high by historical standards, are far more reasonable than those on bonds right now. (For more, see also: Buffett Says Aging Bull Market Best Place to Be.)

 

Published at Tue, 05 Sep 2017 18:15:00 +0000

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Stocks Edge Higher Despite Rising Risks

 

Stocks Edge Higher Despite Rising Risks

By Justin Kuepper | September 1, 2017 — 6:28 PM EDT

The major U.S. indexes moved higher over the past week, despite weak nonfarm payroll data on Friday morning. The Bureau of Labor Statistics reported 156,000 jobs added in August, which was lower than the 180,000 consensus forecast. While these figures were lower than expected, Wednesday’s favorable second quarter GDP revision was enough of a positive to offset any negativity, with a better-than-expected 3% annualized rate.

International markets saw mixed results over the past week. Japan’s Nikkei 225 rose 1.22%; Germany’s DAX 30 fell 0.21%; and Britain’s FTSE 100 rose 0.5%. In Europe, the market will be keeping a close eye on the European Central Bank’s upcoming monetary policy meeting, where measures to reduce stimulus could be announced. In Asia, investors will be keeping an eye on North Korean aggression, particularly with its recent missile launch over Japan. (See also: The 3 Biggest Risks Faced by International Investors.)

The SPDR S&P 500 ETF (ARCA: SPY) rose 1.34% over the past week. After breaking out from the 50-day moving average at $245.05, the index reached prior highs and trendlineresistance at around $247.50. Traders should watch for a breakout to R1 resistance at $250.32 or R2 resistance at $253.16 on the upside or a move lower to retest the 50-day moving average. Looking at technical indicators, the relative strength index (RSI) moved higher to 60.9, while the moving average convergence divergence (MACD) experienced a bullish crossover that could signal upside ahead.

Technical chart showing the performance of the SPDR S&P 500 ETF (SPY)

The SPDR Dow Jones Industrial Average ETF (ARCA: DIA) rose 0.86% over the past week, making it the worst performing major index. After rebounding from the 50-day moving average at $216.54, the index moved toward the middle of its price channel. Traders should watch for a breakout to R1 resistance at $221.86 or R2 and upper trendline resistance at $224.21 or a move lower to the pivot point at $218.80. Looking at technical indicators, the RSI rose to 61.98, but the MACD could see a near-term bullish crossover. (For more, see: Top 3 ETFs That Track the Dow.)

Technical chart showing the performance of the SPDR Dow Jones Industrial Average ETF (DIA)

The PowerShares QQQ Trust (NASDAQ: QQQ) rose 2.83% over the past week, making it the best performing major index. After breaking out from the 50-day moving average at $142.12, the index moved toward its upper trendline resistance. Traders should watch for a breakout from R1 resistance at $148.21 to R2 resistance at $150.23 or a move lower to retest the pivot point at $144.20. Looking at technical indicators, the RSI moved higher to 62.98, but the MACD experienced a bullish crossover that could signal upside ahead.

Technical chart showing the performance of the PowerShares QQ Trust (QQQ)

The iShares Russell 2000 Index ETF (ARCA: IWM) rose 2.66% over the past week. After breaking out from the pivot point at $138.68, the index moved beyond the 50-day moving average to the middle of its price channel. Traders should watch for a breakout to R1 resistance at $143.25 or upper trendline resistance at $145.50. A failure to break out could lead to a retest of the pivot point at $138.68. Looking at technical indicators, the RSI moved higher to 60.64, but the MACD experienced a bullish crossover that could signal upside ahead. (See also: IWM: iShares Russell 2000 Index ETF.)

Technical chart showing the performance of the iShares Russell 2000 ETF (IWM)

The Bottom Line

The major indexes moved higher over the past week, and technical indicators predict more upside potential ahead. Next week, traders will be keeping an eye on several upcoming economic indicators, including factory orders on Sept. 5 as well as international trade data and jobless claims on Sept. 6. The market will also be monitoring developments involving North Korea and the U.S. debt ceiling debate. (For additional reading, check out: Trade Data Hints at a Shift in the Structure of the U.S. Economy.)

Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.

 

Published at Fri, 01 Sep 2017 22:28:00 +0000

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August Employment Revisions

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By jarmoluk from Pixabay

August Employment Revisions

by Bill McBride on 9/04/2017 11:13:00 AM

Last week, in my employment preview, I noted “My sense (mostly based on history) is that job gains will be below consensus in August.” Sure enough.

Here is a table of revisions for August since 2005.  Note that most of the revisions have been up.   This doesn’t mean that the August 2017 revision will be up, but it does seem likely.   I’m not sure why the BLS has underestimated job growth in August (possibly because of the timing of seasonal teacher hiring and the end of the summer jobs).

August Employment Report (000s)
Year Initial Revised Revision
2005 169 196 +27
2006 128 183 55
2007 -4 -20 -16
2008 -84 -267 -183
2009 -216 -213 3
2010 -54 -36 18
2011 0 110 110
2012 96 177 81
2013 169 261 92
2014 142 230 88
2015 173 157 -16
2016 151 176 25
2016 156


Note: In 2008, the BLS significantly under reported job losses. That wasn’t surprising since the initial models the BLS used missed turning points (something I wrote about in 2007). The BLS has since improved this model.

 

Published at Mon, 04 Sep 2017 15:13:00 +0000

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Gilead Rally Isn’t Fully Warranted: Morgan Stanley

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Gilead Rally Isn’t Fully Warranted: Morgan Stanley

By Shoshanna Delventhal | August 31, 2017 — 4:34 PM EDT

As shares of biopharmaceutical company Gilead Sciences Inc. (GILD) continue to soar on news regarding the approval of a CAR-T treatment from Novartis AG (NVS) on Tuesday and Gilead’s acquisition of Kite Pharma Inc. (KITE) on Monday, one team of analysts finds the mixed reaction in pharma stocks rather puzzling.

Morgan Stanley’s Matthew Harrison and team indicate that while a bump in Foster City, Calif.-based Gilead’s shares following its $12 billion acquisition of Kite Pharma was expected due to investor speculation regarding increased strategic interest in the CAR-T space, the mixed reaction in stocks following Novartis’ approval may be unwarranted.

Shares Up on CAR-T Approval

Investors sent Juno Therapeutics Inc. (JUNO) falling on Tuesday, recovering 4.8% as of Thursday afternoon at $42.22 per share and reflecting a 37.3% rally this week. Gilead continues to surge after facing no pullback on Tuesday, up 2.3% on Thursday at $83.07 per share and reflecting a 12.5% jump this week. Biotechnology company Bluebird Bio Inc. (BLUE) has rallied more than 26% this week, up 10% on Thursday at $123.70 per share. (See also: Juno Stock Continues Breakout After Gilead Buys Kite.)

“Novartis outcomes-based pricing is a slight negative to the group, esp. for indications where responses are low (like DLBCL [diffuse large B-cell lymphoma]). Thus, it makes sense that JUNO saw some pressure in light of the sig. move higher this week and BLUE closed the gap with JUNO as BCMA response rates high,” wrote Harrison, speaking to B-cell maturation antigen response rates.

The analysts reiterated their perspective that initial DLBCL sales in 2018 will likely drive street sentiment for Gilead, Novartis and its peers. “We expect near-term volatility to continue as sentiment swings, but do not see greater clarity until 2018,” wrote the Morgan Stanley analysts. (See also: Why Gilead’s Acquisition of Kite Is Not Enough.)

 

Published at Thu, 31 Aug 2017 20:34:00 +0000

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