Tag: Stock Market

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Top Investors All Agree. The Stock Market Is About To Collapse

Business Week Writes:  Investors are buying high, yet again.

investors are stupid investwithalex

Sell low, buy high. Wash, rinse, repeat.

Investors have indulged that predilection time and again—most recently piling into the stock market just ahead of collapses in 2008 and 2001. Now it seems as if everyone again wants in big, even as the Standard & Poor’s 500-stock index has rallied 150 percent from its lows, corporate profits and cash hoards are at records, and the Federal Reserve has expanded its balance sheet to nearly $4 trillion. Equity funds drew $26 billion in the week ended September 18, breaking the previous record set six years ago, according to EPFR Global, which tracks investor flows. Domestic stock funds notably took in just under $17 billion of that total.

FED balance sheet at $4 Trillion is downright scary.  This is how market tops are set.

And with such timing: U.S. shares hit record highs on Wednesday, the last day of EPFR’s reporting period, after the Fed said it would hold off from tapering its bond purchases. The market is up 20 percent this year and has jumped by a third just since last summer, having gone without a correction since 2011. The tech-laden Nasdaq is up 25 percent in 2013, visiting highs unseen since the starry-eyed turn of the century.

In a show of “you buy/we sell,” companies are racing to go public (Chrysler, anyone?). At least 200 firms are gearing to have their IPOs this year, the most since 2007. Meanwhile, in the interest of full and fair disclosure, buyout shops might want to rebrand as sellout shops, so eager have they been to cash out.

If history teaches us anything, this is a clear indication that the market is close to a top. Insiders realize that the market is overpriced and are trying to cash out.

Similarly, some legendary pros say they are in no rush to join the recent buying stampede. “Stocks were very cheap five years ago, ridiculously cheap,” Warren Buffett last week said. “That’s been corrected . . . . We’re having a hard time finding things to buy.”

I confirm this. Everything is too expensive. I cannot find anything to buy outside of a few special situations (here and there) and technically driven plays.

“Right now,” remarked Carl Icahn, “the market is giving you a false picture. The market tells you that you are doing well, but I don’t think a lot of companies are doing that well. They are taking advantage of very low interest rates. So, obviously, you don’t have to be a financial genius to understand if I can borrow at 3 percent or 4 percent and buy assets maybe my own stock that is yielding 9 percent, 10 percent, or 11 percent, I am going to make a lot of money. In one sense or another that is what is going on . . . I do think at [the market’s price-to-earnings ratio] of 17 that you have to be pretty well hedged.”

Bingo Mr. Icahn. That is exactly what is going on. Everyone is playing this stupid carry trade financial shell game. As of right now the music is still playing, the question is….when will it stop. I assure you there won’t be enough chairs. 

 “If you tell me quantitative easing is going to be removed over nine or 12 months,”said Stanley Druckenmiller, “that’s a big deal because it’s my belief that QE has subsidized all asset prices. And you remove that subsidization, the market will go down . . . The minute you have this phony buying stop, [stocks] can go down on no volume and just reprice immediately.”

Exactly. The only thing that is keeping this markets up, artificially I might add, in an insane amount of credit infusion through QE and low interest rates.  When it stops, most asset classes WILL collapse.  The only thing I would disagree with is the fact that the FED has control. The FED has only “perceived” control and the market might take that away at any moment.

In the meantime, keep your eyes on the tidy sum of $1.4 trillion. That’s how much investors have crammed into bond funds between the January 2009 and May 2013, according to Bank of America Merrill Lynch. In the just the past four months, however, they have unwound $173 billion from that mega-trade—an enormous redemption but still just a sliver of $1.4 trillion.

How much of that unwind makes its way to equities, especially when the Fed’s taper starts in earnest? For the market—loved once again, after so long—it’s a question that could trump all others.

At least for now, the paper shuffling game continues. However, be careful here. We are at the 12th inning of the bull run that has started in March of 2009. The bear market should resume soon. 

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Jim Rogers On Gold

Daily Ticker Writes: Jim Rogers Forecasts a Drop to $900

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Commodities investor Jim Rogers tells The Daily Ticker that gold, having lost its luster as a safe haven, could drop to $900 or $1,000 in the next 1-2 years. Longer term, he has a very different forecast. Gold will soar to “well beyond $1,900 an ounce,” topping its record $1,920 high reached in September 2011, says Rogers, author of Street Smarts: Adventures on the Road and in the Markets. The reason: “massive currency debasement” around the world. “Every major central bank in the world is printing a lot of money plus war, chaos, riots in the street, governments failing,” says Rogers.

Despite that forecast, Rogers warns investments not to consider gold – or any other investment — safe. “I would never use the word ‘safe’ when I’m speaking about investing.”

There are only a few investors that I listen to when they speak. Jim Rogers is one of them. A brilliant and very interesting guy.  So, when he says something you better listen. I highly recommend that you click on the link and listen what he has to say. The video is just 2 minutes long. 

My stock market timing work kind of confirms his thesis on gold. I already talked about gold in one of my previous posts CLICK HERE and the fact that I don’t really understand it or know how to value it properly.

Jim mentions that he anticipates gold to decline further over the next few years to shake out the bulls before resuming its bull market due to currency debasement and inflation. My work confirms this as a highly probably scenario. 

As the markets and the economy decline over the next few years in a deflationary environment, so should the gold.  As we bottom in 2016 and begin the inflation cycle I talked about before, gold should start appreciating. Perhaps significantly. Just my two cents. 

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Buffett Can’t Find Any Stocks

Reuters Writes: Buffett lauds Bernanke but laments lack of investment bargains

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(Reuters) – Warren Buffett said on Thursday he would recommend reappointing Ben Bernanke as Federal Reserve chairman, while adding that low interest rates have inflated asset values and complicated his hunt for investments at his company Berkshire Hathaway Inc.

The billionaire investor spoke one day after the central bank surprised investors by postponing its expected wind-down of monetary stimulus, which has in five years more than tripled the Fed’s balance sheet to above $3.6 trillion.

“Since the panic of five years ago, he’s done a terrific job,” Buffett said on CNBC television in a joint interview with Brian Moynihan, chief executive of Bank of America Corp.

Asked if he would reappoint Bernanke when his term expires, Buffett said: “That’s what I would do.”

Nevertheless, at an event later Thursday afternoon at Georgetown University, Buffett said that the Fed’s eventual exit from its monthly bond-buying program will carry unforeseen risks.

“We are in an experiment which hasn’t really been tried before,” he said, adding that “buying securities is usually easier than selling securities.”

Read The Rest Of The Article Here

As the article indicates Mr. Buffett  claims not to be able to find any bargains or value stocks. I second that sentiment.   As of right now I am unable to find any worthwhile value stocks at all. There are some special situations here and there, but overall everything is either fairly priced or overpriced.

That in itself is not necessary a problem.  It is the nature of the stock market to cycle up and down to provide trading opportunities. However, when you combine the current macro economic backdrop with the fact that most stocks are too expensive, the situation is not pretty.

Can they get even more expensive? Of course they can, but as my stock market timing work indicates that shouldn’t last for long. The stock market is in the topping process and when complete we should receive a number of confirmations that the bear market is back. Once again, I don’t believe we have to wait too much longer now.  

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Stock Market Update, Sept 19th, 2013

Sept 19 2013 chart

 

I continue to advice to maintain a long position for the time being, but be ready to switch direction at a moments notice.  

Even though I am “Bear” anticipating the market to decline significantly over the next few years, I do have to admit the chart and other technical indicators look strong here. This is a very interesting time. Will the market go on to set a new high or will it be unable to push much higher from here? Will it pause or reverse here? 

All we can do for now is maintain our long position and wait for a confirmation that the bear market is here. Are we there yet or will March of 2014 (as I have mentioned earlier) be the actual top? The market did open a bunch of gaps at 15,300 that it will have to go down in order to close, but at least for now the short term picture looks fairly good here.  There is no need to fight that. 

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Reality Of Today’s FED Move

Bloomberg Writes: The Fed’s ‘No Taper’ Sparks a Trading Frenzy

 

S&P 500 5-minute

The Federal Reserve surprised nearly everyone today when its Open Market Committee announced at 2 p.m. that it would not taper its $85 billion in monthly bond purchases because it is concerned about weakness in the economy. The announcement led to an across-the-board rally as investors hurried to plow money into stocks and commodities.

The market reaction was instantaneous: According to data off my Bloomberg terminal, between 1:59 p.m. and 2:00 p.m., the Dow Jones Industrial Average jumped 141 points, from 15,485 to 15,626. Over the next two and a half hours, the Dow added another 50 points to close up 147 points on the day.

Read The Rest Of The Article Here 

On a more serious note, while the market and most people celebrate I see it from a different perspective. While most market participants see it as “The Fed will not taper $85 Billion per month stimulus” I see it as “The Fed CANNOT taper $85 Billion per month stimulus”. 

There is a significant difference between these two statements. You see, Ben Bernanke and the Fed understand that if they stop the QE bond purchasing program the following things will happen within a short period of time. 

  • Interest rates will shoot up. 
  • Dollar will strengthen. 
  • Deflation will finally be evident. 
  • Stock market will collapse. 
  • Real estate market and auto sales will collapse. 
  • The US Economy will tank. 

They do not want to allow that to happen for obvious reasons. However, the laws of physics cannot be bypassed. Sooner or later all of the things above will happen irregardless of what the Fed does. 

I do find it troubling that the market only went up 150 points or so. That is a fairly weak performance considering what has happened. In no uncertain terms the FED told everyone that it will keep this credit financed speculation party going for as long as possible. 

The biggest mistake I think everyone is making is the fact that they believe the FED has control of the markets. That is not even close to reality. They do not control anything. Don’t be surprised if the market reverses tomorrow and begins its next let down. 

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How The Stock Market Really Works (PART 1)

3d tunnel - invest with alex

 

People have a lot of misconceptions about how the stock market works. The primary two are…

  1. That the stock market is random and
  2. News, events, policy, governments, etc…. drive the stock market.

After in depth study of the market over the last 15 years, nothing could be further from the truth. The market is NOT random and news/events, etc… have no impact on the overall trajectory of the stock market. As a matter of fact, it is the market that drives events and not the other way around.

So, how does the market work? The stock market is a lot more complicated than most people believe. You see, most people view it as a two dimensional (2-D) representation of time moving up and down over time. It is a very simplistic view to take, but that’s what everyone does.  

However, the market is A LOT more complicated than that. Before I tell you what I mean, allow me to bring your attention to something else for a second. I want you to realize that Mother Nature does not produce 2-D systems. Nothing in nature is 2-D while everything in nature is at least 3 Dimensional (3-D). Look around you. Everything in the physical realm, from planets to atoms exists in 3-D.

What does this have to do with the stock market? Everything.

The stock market is NOT a 2-D environment. It exists in at least a 3 Dimensional environment. It is our human mind that cannot comprehend that and as such forces the stock market chart into the 2-D (Time/Price) chart.

Let me give you an example. Take a look at the 3-D tunnel above. Imagine a snake moving away from you by hugging the walls of the tunnel. Well, that is a 3-D movement. However, if you take this same tunnel and turn it so you face it head on, the ONLY movement you will see is UP and DOWN 2-D movements within the tunnel.

That is exactly what we see on the stock market chart. Yet, the market is a lot more complicated. Not only does it have up and down movements, it moves sideways (in volume) as well.  When one understand that, one can take financial/market analysis to the next level and predict the timing of the stock market moves mathematically with great accuracy.

This concludes Part 1 of How The Stock Market Really Works. 

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You Are Your Own Worst Enemy. Why The Market Is About To Take Your Money Again….If You Don’t Listen

Business Week writes: “Investors’ Worst Instincts, Revealed (Again)”

sheep_off_cliffThe U.S. stock market is killing it. In the two-and-a-half year period from Jan. 1, 2011, to June 28, 2013, U.S. shares returned a cumulative 35 percent—26 percentage points ahead of international developed markets and 47 points better than emerging markets.

Investors, being investors, have taken to this turn of events by doing what they have sworn many times never to do again: They’re chasing the winners. In July, investors crammed a record $40.3 billion into U.S. equity mutual funds and exchange-traded funds—this after years of yanking money from the category.

History offers plenty of examples as to why this is a bad idea. Emerging markets got hot in the mid-1990s, only to melt down just as U.S. dot-coms and tech stocks took over. By the time most retail investors bought in to that doomed mania, small caps, commodities, and BRICs took over. Lather, rinse, repeat….

This is not a surprise. This is how the markets work. This is how the human mind works. Majority of people are followers and seek out safety in numbers. If everyone is making money, I should do it and if everyone is in that mutual fund, I should be in it as well.

I do agree with one premise of the article. The market is significantly overvalued and since most people are once again chasing hot stocks, it is about to go down. I will go even further than that and say that the market is about to go down big time (20%-40%) as my timing work and previous articles indicate.

Don’t be stuck with the bag of shit when the music stops playing.  Right about now is a good time to get out of stocks. It’s might be a little too early to confirm, but technical indicators are showing that the final bear leg that will take us into the 2016 bottom and the end of the bear market that started in 2000 might have already started. There will be a bounce here followed by a decline. All we have to do now is wait for a confirmation.  I will write more about it later.