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How Watching Market Psychology Can Help You Time the Market

Elliott wave patterns in price charts reflect the struggle between the bulls and bears
By Elliott Wave International

 

Two economic reports hit the newswires Thursday morning (March 6). Both were important, yet each one had the opposite implication for the trend. The market chose one report over the other, and the question is, why — and what can we learn from that? Read more.

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Investment Markets Overview — W/E 24th October 2014

Governments worldwide are on a tax-grab to alleviate necessary austerity measures, particularly as effective austerity means big government has to slim down and they don’t like that, preferring to pass on the pain to their electorates. Of course, to pander to the masses they have dressed up increases, such as “mansion taxes” and “air passenger duty,” under the banner of “fairness” in that the wealthier members of society should contribute more, failing to recognise that the taxes often harm the less well-off disproportionately or mentioning that politicians and the upper levels of the supporting bureaucracy will either be exempted or have it paid for by the tax-payer to whom they are trying to be fair. This week there were two more attempts at “fairness,” announced, one from that bastion of efficient “value for money,” the European Commission, the other from Scotland, flexing its recently devolved powers to raise taxes. There is more on the Scottish Nationalist’s plan on “fairness” below, whilst the EC’s brainwave is to demand extra payment from member states who it perceives to have been the more successful economies of late, including the UK and the Netherlands, who are saddled with the largest bills, but also from other “successes” Italy, Greece and Cyprus (not a typo!) Meanwhile, the beneficiaries of this “redistribution of wealth,” will include the current lead-basket case called France, followed somewhat perversely by Germany, the locomotive of EU growth.

24 Oct 14

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Additional Commentaries:
•US economic data . . .
•Euro-Zone . . .
•The UK . . .
•Out East . . .
•The $US index . . .
•Within the commodities complex . . .
•Economic data due next week includes . . .

Scotland’s Finance Secretary, John Swinney, announced the “Land and Buildings Transaction Tax,” this week, designed to reduce inequality …..

Charts:
1.Indices Weekly
2.US House prices V US Home Sales
3.E-Z Debt / GDP Levels
4.China House Prices V China GDP
5.Commodity 1 Week Moves

Table:

13 Indices, 11 columns of detailed information, for accurate analysis

Politics and Fairness have become Strange Bed-fellows

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RedMargin?

Just about a year ago we wrote a piece called, “At the Margin,” commenting on the continued rise of margin debt to an all time record of $US401.24BN, adding comment on why it’s a useful contrarian indicator!

Fast forward to the latest figure, at August’s end, and we have another near all time record of $US463BN, after peaking at $465.7BN at 28th February this year, a jump of 15% against that September 2013 number. Over the same period, the S&P 500 index has been stoked by 12%, with half of that thanks to the bounce of the past few days.

23 Oct 14 Blod 1

In other words it is taking ever-increasing levels of debt to push stocks higher, and GDP come to that.

A second chart shows an update of margin debt as a percentage of GDP, or the size of the US economy

23 Oct 14 Blog 2

We’ll repeat the two observations made in last year’s blog (updated):-

  • Over the 35 years from 1959 to 1994 margin debt never exceeded 10% of GDP, until mid-1995, since when it has remained in double-digits.
  • At a near 27%, margin Debt/GDP is nearly 12 times the ratio seen at the 1974 stock-market low.

This is huge and begs the question, “will this ratio move higher still, or is a single digit Margin-Debt/GDP likely to return?”

Frankly, nobody knows, but as a natural contrarian, that horizontal red-line looks to be a good target going forward.

 

Investment Markets Overview — W/E 17th October 2014

It was a big week for “Inflation Updates,” at least the nonsense compositions that make up “official CPI numbers,” as opposed to money supply, velocity of money readings and good old credit growth numbers, all far better measures of inflation. Either way, whereas there was a time when Central Bankers’ allegedly had sleepless nights over high inflation, today they are desperate to stoke inflation in any way they can, whether legal or nor. This week’s release of CPI and/or PPI for the US, the UK, the Euro-Zone and from Japan should have given the CBs nightmares, albeit that Japanese PPI for September came in as expected, still negative at -0.1% versus the -0.2% seen in August. UK CPI and PPI for the same month hit a 5-year low, the former at 0% month on month and 1.4% year on year, with PPI at a respective -0.5% & -6.7% annualised, so not much change there for Charmer Carney for the £375BN wasted. Meanwhile, with over half of the Euro-Zone already in deflation, a not so cool expansion of the Fed’s balance sheet, by a massive $US3.5 trillion, has failed to stimulate any price inflation in anything other than financial assets, but perhaps that was their intention all along? For the record, US PPI final demand came in at -0.2% in September versus 0% in August.

17 Oct 14

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Additional Commentaries:
•US economic data . . .
•Euro-Zone . . .
•The UK . . .
•Out East . . .
•The $US index . . .
•Within the commodities complex . . .
•Economic data due next week includes . . .

Returning to those “inflation numbers,” or at least the US wholesale figure, aka PPI, no sooner was the ink dry on the data release…..

Charts:
1.Indices Weekly
2.US PPI V US Retail Sales
3.UK Unemployment V UK Average Wages
4.China PPI V China GDP
5.Commodity 1 Week Moves

Table:

13 Indices, 11 columns of detailed information, for accurate analysis

Insanity: doing the same thing over and over again and expecting different results

Click Here to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

China Connection

It’s a big week for “Inflation Updates,” at least the nonsense compositions that make up “official CPI numbers,” as opposed to money supply, velocity of money readings and good old credit growth numbers, all far better measures of inflation. Either way, this week sees the release of CPI and/or PPI for the US, the UK, the Euro-Zone and for Japan on which we will be commenting in next Monday’s “Investment markets Overview.”

The World’s “leading central bankers” have committed their respective electorates, oops they are unelected, to a further $US 30,000,000,000,000 ( yes, it looks more daunting than $US30 Trillion and it is) of debt, by way of QE and other stimulus measures to re-flate their respective economies, and have failed miserably, just as we said they would.

We can also include China, that extremely important number two economy in the world, who this week announced that factory-gate prices fell in September for a record 31st month, whilst its CPI reading for September came in at a below consensus 1.7% forecast, at 1.6% annualised, versus the 2% registered in August. One glance at Chinese CPI and GDP shows a falling trend for both, despite the massive stimulus attempt by China in 2009.

15 Oct 14 Blog 1

Meanwhile, China’s M2 money-supply eased to 12.8% annualised in August and it’s worth a comparison of this against the main Chinese stock index. The stand-out, aside of the money-supply trending lower for four years now, is just how muted the stock market response was in 2009 to that massive stimulus attempt.

15 Oct 14 Blog 2.

Like their counterparts in the West, the Chinese authorities appear to “fudge” their official statistics, allegedly, so you are on your own in respect of working out exactly what’s going on.

We try not to fudge but “connect the dots,” where many seem to fail and the CPI connection with China is very real, it’s called “exporting de-flation.”

 

Investment Markets Overview — 10th October 2014

As if there isn’t enough war in the world, this week regulators in the US and the UK announced a planned “banking war-game,” to “test crisis defences,” or in plain English, to simulate the failure of a major cross-border bank, like Lehman Bros, to test their systems against a repeat of 2008, when Lehman went spectacularly bust and tax-payers from the two countries were committed to $/£ Billions to bail-out the banking sector. The exercise, involving the Fed’s Chair Yellen and the Bank of England Governor Carney, will take place on Oct. 13 in Washington, with the US Treasury Secretary Lew and the UK Chancellor George Osborne tagging along for good measure, as will the heads of a host of financial regulatory outfits from both sides of the pond. Osborne told reporters, “We need to make sure that taxpayers are not on the hook for future bank failures,” whilst the Financial Stability Board, also headed by Carney, maintains a list of global systemically important banks, currently numbering 29 banks and identifying HSBC and JPMorgan Chase & Co. as the banks whose failure would do the most damage to the global economy. Quite why this exercise is required beggars belief as one look at the Office of the Comptroller of the Currency’s US banking system derivatives report (available online) reveals that the aforementioned banks, together with a hand-full of others, hold derivatives exposure of up to 800% of their worth. QED.

10 Oct 14

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Additional Commentaries:
•US economic data . . .
•Euro-Zone . . .
•The UK . . .
•Out East . . .
•The $US index . . .
•Within the commodities complex . . .
•Economic data due next week includes . . .

In our “week-ending” 11th October 2013 we wrote, “The IMF revised lower its forecasts for global growth, its second downward revision this year …..

Charts:
1.Indices Weekly
2.US Revolving V Non-Revolving Credit
3.German Exports M on M V German Exports Y on Y
4.China M2 MS V Shanghai Comp Index
5.Commodity 1 Week Moves

Table:

13 Indices, 11 columns of detailed information, for accurate analysis

Leverage lurks unrecognised and unappreciated

Click Here to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

Buyback Bubble?

Share buy-backs is the term used when a company buys back its own shares from either its free cash-flow or from borrowings, effectively stating that the company cannot find any better use for growing the business or reducing debt.

Whilst this has some merit during a period following a debt-induced financial bust, due to the over-capacity created during the prior boom and the low interest rate response to the bust, a cynic would observe that the shorter term earnings enhancing benefit from a buyback sits very well with management’s bonus conditions but not necessarily with the shareholder over the longer term.

The Bloomberg S&P 500 Buyback Index measures the performance of the top 100 stocks with the highest buy-back ratio, defined by “cash paid for common shares buyback in the last four quarters divided by the SPX total market capitalisation.”

8 Oct 14 Blog 1

As can be seen within the chart above, there has been a close correlation between the S&P 500 index and the buyback index, as stock repurchases totalled almost $US2 trillion since March 2009. The correlation has become even tighter since the 2011 correction low, as witnessed below.

8 Oct 14 Blog 2

However, this form of “financial engineering,” may have gone too far, as share buybacks now account for more than 30 percent of cash flow, almost double that seen in 2002, according to a Bloomberg report, whilst the portion used for capital spending has fallen to 40% from more than 50%, leaving companies with an average age for fixed assets at 22 years, the oldest plant and equipment in almost 60 years.

Of particular concern, however, is that buybacks and dividends have exceeded profits in Q114 and look likely to in Q314, according to the same report, noting that the last time this situation existed was in 2007.

Now what was it that occurred in 2007?

Investment Markets Overview — 3rd October 2014

Polarisation resurfaced in Hong Kong this week as thousands of pro-demo crazy  cracy protesters staged a peaceful sit-in on the streets within the financial district and three other areas of this Special Administrative Region of the People’s Republic of China. And there is the rub, as following the 155-year British rule a deal was done with China, handing the colony over in 1997, but based on Hong Kong Law, a constitutional document drafted by the Chinese which stipulates that Hong Kong shall have a high degree of autonomy in all matters except foreign relations and military defence. Fast forward to 2014 and one sees growing tensions between the people in the streets who are “asking for the right to nominate” candidates for the 2017 elections, whereas Beijing interpret the constitution as saying, “ you can have one person, one vote, but only from a severely restricted list of candidates, chosen by China.” Meanwhile, there was a split at Pimco, the largest bond investor in the world, as its founder and CIO, Bill Gross, decided to leave without saying boo to his bosses at Allianz SE, on which more comment follows.

3 Oct 14

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Additional Commentaries:
•US economic data . . .
•Euro-Zone . . .
•The UK . . .
•Out East . . .
•The $US index . . .
•Within the commodities complex . . .
•Economic data due next week includes . . .

Bill Gross, aged 70, who helped found Pacific Investment Management Co, or PIMCO, 43-years ago and, with an outstanding investment track record …..

Charts:
1.Indices Weekly
2.US House Prices V Consumer Confidence
3.UK GDP V M4 Money Supply
4.Japan House Starts V Mortgages
5.Commodity 1 Week Moves

Table:

13 Indices, 11 columns of detailed information, for accurate analysis

Too Big to Manage Gained a Whole New Meaning This Week

Click Here to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

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