Tag Archives: Stock Market

This is Not a Market, by Raúl Ilargi Meijer

A supposed market in which the government intervenes to suppress price discovery is not a market. From Raúl Ilargi Meijer at theautomaticearth.com:


René Magritte La trahison des images 1929“[Price discovery] is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers”, says Wikipedia. Perhaps not a perfect definition, but it’ll do. They add: “The futures and options market serve all important functions of price discovery.”

What follows from this is that markets need price discovery as much as price discovery needs markets. They are two sides of the same coin. Markets are the mechanism that makes price discovery possible, and vice versa. Functioning markets, that is.

Given the interdependence between the two, we must conclude that when there is no price discovery, there are no functioning markets. And a market that doesn’t function is not a market at all. Also, if you don’t have functioning markets, you have no investors. Who’s going to spend money purchasing things they can’t determine the value of? (I know: oh, wait..)

Ergo: we must wonder why everyone in the financial world, and the media, is still talking about ‘the markets’ (stocks, bonds et al) as if they still existed. Is it because they think there still is price discovery? Or do they think that even without price discovery, you can still have functioning markets? Or is their idea that a market is still a market even if it doesn’t function?

Or is it because they once started out as ‘investors’ or finance journalists, bankers or politicians, and wouldn’t know what to call themselves now, or simply can’t be bothered to think about such trivial matters?

Doesn’t a little warning voice pop up, somewhere in the back of their minds, in the middle of a sweaty sleepless night, that says perhaps they shouldn’t get this one wrong? Because if you think about, and treat, a ‘thing’, as something that it’s not at all, don’t you run the risk of getting it awfully wrong?

To continue reading: This is Not a Market

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Hot War and Cold Markets, by Raúl Ilargi Meijer

There’s something incongruous about the prospect of a full-fledged war in the Middle East and lofty asset prices. From Raúl Ilargi Meijer at theautomaticearth.com:

This is turning into a comedy. A black comedy, for sure, but still. As both the Skripal novichok ‘poisoning’ case in Britain and the ‘chemical attack’ in Douma, Syria fall flat on their faces on a total and absolute lack of evidence, it’s becoming clear that western ‘authorities’ are not at all planning to let go of the privilege that in times gone by allowed them to claim whatever they wanted and demand to be believed.

And despite the insane amounts of spying that underlies their business models and will lead to their demise(s), here is where social media do play a decisive role. See, if you’re an ‘authority’, there’s nothing you would rather do than to close down those social media that let people spread news that contradicts and/or doubts what you just said, and undermines that privilege. But that also would mean you can’t spy on them anymore through social media. A toss-up?!

Whatever the outcome will be, it’s obvious that Donald Trump is having war talks with his military and closest advisers. And they can basically tell him anything, he’s not a military man. Which is fine, Lincoln wasn’t either. But it does mean he’s vulnerable to narratives and briefings that are simply not true. Lincoln went to great lengths to surround himself with people who could trust.

What about Trump? Does he know that, as Paul Craig Roberts said on Twitter yesterday ..

The Russians know that they can, at will within a few minutes, sink the entire US fleet, destroy every US airplane & ship in the ME & within range of the ME, completely destroy all of Israel’s military capability & wipe out the military of the two-bit punk state of Saudi Arabia.

.. or do they keep that from him? Because if he did know, why have this entire circus going on? Why did the King of Twitter yesterday threaten with his new and shiny toys and then today switch to:

Never said when an attack on Syria would take place. Could be very soon or not so soon at all! In any event, the United States, under my Administration, has done a great job of ridding the region of ISIS. Where is our “Thank you America?”

To continue reading: Hot War and Cold Markets

The Deep State Closes In On The Donald, Part 1, by David Stockman

Has the Deep State taken Trump hostage. David Stockman thinks so. From Stockman at davidstockmanscontracorner.com:

Perhaps we have missed something: Like the possibility that the canyons of Wall Street are actually located on another planet several light years from earth!

Otherwise, how can you explain the equipoise of a stock market sitting at the tippy-top of a nine-year bubble expansion and confronted with the potential outbreak of World War Three?

Folks, like some alien abductors, the Deep State has taken the Donald hostage, and with ball-and-chain finality. Whatever pre-election predilection he had to challenge the Warfare State has apparently been completely liquidated.

Trump’s early AM tweet today, in fact, embodies the words of a man who had more than a few screws loose when he took the oath, but under the relentless pounding of the Imperial City’s investigators, partisans, apparatchiks and lynch-mob media has now gone stark raving mad. To wit:

“….Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and “smart!” You shouldn’t be partners with a Gas Killing Animal who kills his people and enjoys it!

Yes, maybe Wall Street has figured out that the Donald is more bluster than bite. Yet when you consider the broader context and what the Russian side is now saying, it is just plain idiotic to own the S&P 500 at 24X. After all, earnings that have been going nowhere for the past three years (earnings per share have inched-up from $106 in September 2014 to $109 in December 2017), and now could be ambushed by a hot war accident in Syria that would rapidly escalate.

Indeed, did the robo-machines and boys and girls down in the casino not ponder the meaning of this message from the Kremlin? It does not leave much to the imagination:

#Russian ambassador in beirut : “If there is a strike by the Americans on #Syria , then… the missiles will be downed and even the sources from which the missiles were fired,” Zasypkin told Hezbollah’s al-Manar TV, speaking in Arabic.

Sure, the odds are quite high that the clever folks in the Pentagon will figure out how to keep the pending attack reasonably antiseptic. That is, they will bomb a whole bunch of places in Syria where the Russians and Iranians are not (after being warned); and also deploy stand-off submarine platforms to launch cruise missiles and high-flying stealth aircraft to drop smart bombs, thereby keeping American pilots and ships out of harm’s way.

To continue reading: The Deep State Closes In On The Donald, Part 1

It increasingly looks like the bull market in stocks is over, by David Rosenberg

For a variety of reasons both economic and financial, economist David Rosenberg thinks the equity bull market is done. From Rosenberg at businessinsider.com:

  • It’s looking more and more like the top tick for stocks was recorded on January 26, says David Rosenberg, the chief economist at Gluskin Sheff.
  • Rosenberg expands on this and 12 other thoughts on the current market environment.
 1. The bull market is over. This doesn’t mean we won’t be getting tradable rallies along the way. But it does look increasingly as though we saw the highs on January 26th for the cycle.

All three of the major indices are down in three of the past four weeks. The degree of volatility is symptomatic only of a market in transition. I mean — nine of the past eleven sessions have seen the S&P 500 swing up or down 1% or more. So far this year, the number of such intensely volatile days already has tripled what we experienced in 2017. And the fact that the Dow has now posted two individual periods in the same year of 10%+ declines says the same thing — declines like these back-to-back are more like hallmarks of bear, not bull, markets. New lows have outnumbered new highs for 12 of the past 13 sessions — so you be the judge of what the internals are suggesting right now.

And yet the bulls are undeterred (as if we are supposed to get excited, from a contrary standpoint, just because the National Association of Active Managers survey of average portfolio manager exposures to the stock market has gone to 55.6 from an average of 71 in the first quarter).

Friday’s action is a case in point. Selling on higher volume and if you were watching what happened the three prior days, the buying was on weak volume. All major 11 sectors closed the week in the red.

 I mentioned last week that we have already seen evidence in the earnings season that companies that beat are seeing their stocks sell off. Classic case of there still being too much optimism priced in at current levels, even after the turbulence of late. And Spotify’sshaky debut is another hallmark of a changed investing landscape — the shares began trading on Tuesday at $165.90 and closed the week at $147.92. This is not at all characteristic of bull-market behavior.

The Real Reason Why Stock Markets Will Continue To Crumble This Year, by Brandon Smith

Central banks, according to Brandon Smith, will continue to pull the plug on equity markets. From Smith at alt-market.com:

Public sentiment on the economy is generally influenced by to two false indicators — the national unemployment rate and stock markets. This is not to say the average person tracks either of these numbers very vigorously; they don’t. What they do is hear these numbers on the morning news, the radio news on their way to work (if they are employed) or they hear them on the evening news just before bed. If the jobless rate is low and the Dow is high, then all is right with the world, at least financially.

When it comes to the economy, most people are lost.

The average American, in particular, is not as oblivious to the world of political and social discourse as they are on economics. Whether on the left or the right of the political spectrum, most citizens know that lines are being drawn and ideological battles are accelerating into realms of the extreme.  Conservatives and the liberty activists that stand at the front line of the culture war understand quite well the threat of globalism and the “philosopher king” elitism of international financiers. They know that these criminals must eventually be dealt with if freedom and stability are to return to the world.

There is a rather common disinformation tactic used to manipulate people within conservative circles that has made a resurgence lately in the wake of the Trump election win. It is the idea that Americans within the “working class” aren’t interested in “high-minded” debates over philosophical conflicts, such as the conflicts between individualism versus collectivism and globalism. There is also the notion that “real” Americans could not care less about the elitist culprits behind the political theater of the false left/right paradigm.

This attitude is presented as a superior one. That is to say, disinformation agents play to people’s egos, suggesting that the working class should be focused on putting food on the table and money in their wallets and that the rest of this “intellectual nonsense” should be ignored as frivolous.

 

To continue reading: The Real Reason Why Stock Markets Will Continue To Crumble This Year

So is the “Trade War” Crushing Stocks? by Wolf Richter

Wolf Richter says the “trade war” may not have been the cause of the stock market’s drop. He might want to follow up on that thesis and check out Robert Prechter’s large body of work. From Wolf Richter at wolfsreet.com:

Bull markets climb a wall of worry. What the heck happened?

OK, it was an ugly week. Facebook (FB) dropped 14% and lost $75 billion in market cap. It’s down 10% year-to-date. It’s currently trying to dig itself deeper into its self-inflicted debacle. It wasn’t just Facebook. Alphabet (GOOG) dropped 10% in the week and is down 2.4% year-to-date. This was a broad selloff.

The S&P 500 index dropped nearly 6% for the week and 9.9% from the peak on January 26. It’s down 3.2% year-to-date. At 2,588, it’s just 7 points above the low point on February 8, which is begging to be taken out on Monday. This drop is big enough to show up on a long-term chart, but given the nine-year 320% rally, why would anyone be surprised?

The Dow dropped 5.7% for the week. It’s down 11.6% from the peak on January 26, and down nearly 5% year-to-date. It carved out a new low in this down-cycle.

The Nasdaq dropped 6.5% for the week, and 7.8% from its peak on March 12, but is still up 1.3% for the year.

When stocks soared no matter what, it was because they were “climbing a wall of worry,” which is, as it was ceaselessly pointed out, what bull markets do. Bad news was good news. It didn’t matter what happened. The worse the news was, the more stocks would climb. Falling earnings and revenues no problem. Geopolitical nightmare scenarios no problem. Trump’s promises during the campaign and after the election to fix the trade imbalances in the US were just as well communicated as his promises to cut taxes. From the day Trump was elected until its peak on January 26, the S&P 500 soared 30%.

To continue reading: So is the “Trade War” Crushing Stocks?

The Arithmetic of Risk, by John P. Hussman

Sooner or later Hussman’s warnings about overvalued markets and speculative manias are going to hit home. The market has been overvalued for a long time, but Hussman detects a shift in the its underlying risk dynamics. From Hussman at hussmanfunds.com:

The collapse of major bubbles is often preceded by the collapse of smaller bubbles representing ‘fringe’ speculations. Those early wipeouts are canaries in the coalmine. Once investor preferences shift from speculation toward risk-aversion, extreme valuations should not be ignored, and can suddenly matter to their full extent.

A month ago, I noted that prevailing valuation extremes implied negative total returns for the S&P 500 on 10-12 year horizon, and losses on the order of two-thirds of the market’s value over the completion of the current market cycle. With our measures of market internals constructive, on balance, we had maintained a rather neutral near-term outlook for months, despite the most extreme “overvalued, overbought, overbullish” syndromes in U.S. history. Still, I noted, “I believe that it’s essential to carry a significant safety net at present, and I’m also partial to tail-risk hedges that kick-in automatically as the market declines, rather than requiring the execution of sell orders. My impression is that the first leg down will be extremely steep, and that a subsequent bounce will encourage investors to believe the worst is over.”

On February 2nd, our measures of market internals clearly deteriorated, shifting market conditions to a combination of extreme valuations and unfavorable market internals, coming off of the most extremely overextended conditions we’ve ever observed in the historical data. At present, I view the market as a “broken parabola” – much the same as we observed for the Nikkei in 1990, the Nasdaq in 2000, or for those wishing a more recent example, Bitcoin since January.

To continue reading: The Arithmetic of Risk