Editor’s Note:
In this series of articles, we include important or interesting
videoclips with our comments. This is an article that expresses our
personal opinions about comments made on Television and in Print. It is
NOT intended to provide any investment advice of any type whatsoever.
No one should base any investing decisions or conclusions based on
anything written in or inferred from this article. Investing is a
serious matter and all investment decisions should only be taken after a
detailed discussion with your investment advisor and should be subject
to your objectives, suitability requirements and risk tolerances.
1. Is there anybody out there?
Perhaps not. It seemed like computers were the only ones around in the US stock market. Especially on Friday which was the least volatile day since 1993, according to BTV’s Adam Johnson. The VIX closed down 5.88% to 13.45.
This point was made a day earlier by BTV’s Stephanie Ruhle. She pointed out that the realized volatility had dropped in the last 10 days to 3% (old normal being 15%). The chart in her videoclip proves that a picture is worth a thousand words. Ms. Ruhle called it the dog days of summer and woofed on air for emphasis.
We wonder whether Ms. Ruhle is biased against that minority, that much maligned minority in the markets. We speak, of course, of algos who must have been in heaven all week.
2. “S&P sunbathing on the beach nude without sunscreen“
Now, how colorful is this as an image? This unusual insight was delivered by Todd, used to be “flash”, Gordon, a FX technical trader on CNBC’s Money in Motion on Friday. Before you start picturing a nude S&P, realize that the most important question is whether the sunbathing S&P is a young slim body on the Copacabana or an old obese body on a tourist packed Spanish beach. Mr. Gordon seems to favor the latter because he said that the S&P is overdone. And so did his colleagues on the CNBC Money in Motion show on Friday.
There is no shortage of bearish opinion among gurus. But as Lawrence McMillan of Option Strategist pointed out on Friday “this market is becoming the ultimate in defying bearish opinion,” which he describes as “still rather rampant“. So what’s next in his opinion?
- “In summary, the market is still bullish for the intermediate-term. The overbought conditions that exist now will likely lead to a sharp, but short-lived pullback soon. That pullback will likely to be a buying opportunity.”
Since the direction of the stock market is the only question that matters, we provide a range of opinions in our videoclips section below.
Those who believe that the Euro is an indicator of the risk-on environment should read the article by Tom McClellan titled Taking a Look at COT Data For The Euro. The key comment in that article?
- “The euro currency has now broken its declining tops line, and history shows that these breaks tend to matter for marking changes in trend direction.”
Tim Collins (@Tangletrade), a technician who writes for RealMoney, also considers a further Euro rally likely, as reported Jim Cramer on Tuesday on his Mad Money show. Mr. Collins thinks the Euro could go to 1.25 if the 1.22 floor holds.
3. Inferno, not a sunburn!
If the S&P 500 is sunbathing without sunscreen, the 30-Year bond is in an inferno. Kudos to Tom McClellan for warning us last week that “T-Bond prices have more distance yet to go downward“. Those who listened to his sage warning saved themselves a bunch of money this week.
Michael Hartnett of BAC-Merrill Lynch called it a Bond Crash and wrote:
- “Bearish equity investors have been waiting for stocks to crash. But the crash of late is in government bonds, despite massive central bank buying of bonds….2-year yields in lead indicator Australia (no intervention there) already up 100bps.”
He called the chart of the 30-Year Bond “The Most Important Chart in the World”. Why?
- “The 30-year Treasury yield has bounced off the 2.5% level, as it did in 2008. If the 30-year Treasury yield has truly marked a secular double-low of 2.5%, as rising US real estate prices show that low rates are finally working, then the world of asset allocation is about to be turned on its head by The Great Rotation.”
By the Great Rotation, he means the mass movement of money from bonds to stocks.
4. Guaranteed to impress at your next cocktail party!
Speaking of rising real estate prices, Robert Shiller was interviewed by BTV’s Adam Johnson. Mr. Shiller essentially said the same things he said two weeks ago to FBN’s Connell McShane. But he delivered a zinger in his final comment:
- “Do you know what the long term increase in home prices in real terms is? It is a fraction of 1% over the last century.”
We are not cocktail party types. But if you are, you should ask the above question of others at your party. The answer will stun them and make you look so smart.
Mr Shiller is not ready to call this turn in real estate prices as anything more than seasonal. If he turns out to be correct, then what happens to bulls who have begun saying who needs China when we have US house prices rising?
5. Could China’s GDP growth rate be Zero?
China surprised the investing world by announcing, according to the FT, that the FDI in July fell 8.7% year-on-year to $7.6 billion, helping to limit the inflow in the first 7 months of 2012 to $66.7 billion, a drop of 3.7%. The FT further reported the comments below from the Commerce Ministry spokesman:
- “Right now, the sharp drop of exports to EU countries is the biggest important factor weighing on China’s export growth.”
When asked by CNBC’s Brian Sullivan, Gordon Chan
g, author of ‘The Coming Collapse of China” said the following:
- “I think there is a panic button we should be hitting, the FDI numbers were not the worst numbers we saw in July for the second quarter. If you look at the balance of payment turn negative in Q2, we saw perhaps $110 billion worth of capital flight and the Chinese economy, if you look at the electricity production, the manufacturing surveys, the price indices, the copper and iron ore being parked in parking lots, you know we have a Zero growth economy in China.”
Both Don Strarszheim, the veteran China investor, and Brian Sullivan laughed at Mr. Chang. The US stock market simply yawned at this drop of FDI in China. So China now is only a source of bullish fodder. If China delivers another stimulus, that would be great for risk assets. But if China doesn’t, then the bulls would simple say China who? After all, when you expect massive stimulus guaranteed by Super Mario Draghi, why would you care about remote, seemingly irrelevant China?
Featured Videoclips:
- Doug Kass on CNBC Fast Money on Tuesday, August 14
- Keith McCullough on CNBC Fast Money Half Time on Thursday, August 16
- Jeff Kilburg on CNBC Fast Money on Thursday, August 16
- Marc Faber on CNBC Fast Money Half Time on Wednesday, August 15
- Jurrien Timmer on CNBC Fast Money Half Time on Wednesday, August 15
- Tim Hayes on BTV Street Smarts on Friday, August 17
1. Triple Top in the S&P 500 – Doug Kass on CNBC Fast Money Half Time – Tuesday, August 14
The title of the CNBC.com summary Beware the Dreaded Triple Top
in the S&P 500 tells the entire story. Mr. Kass also expressed
concern about the action of the Transports and the below 14 level of the
VIX. Mr. Kass also pointed out the following fundamental challenges:
- Selection of Paul Ryan as V.P. candidate
- Gov. Romney trailing in polls
- European recession
- Harder landing in China
- Rising energy prices
2. Why I went short the S&P? – Keith McCullough on CNBC Fast Money Half Time – Thursday, August 16
Mr. McCullough said the following on air:
- this
is a very interesting spot in as much as it was in March – it is really
your 2nd opportunity here to sell stocks and buy bonds. We would do that
quite simply because we think in the end, economic gravity matters which
in this case is growth; we think growth continues to slow not only
globally with what the Chinese said last night but locally with $116
Brent Oil, we think consumption in the US is going to be a big problem;
we are starting to see that obviously in corporate earnings and
revenues. - we
are looking at the inverse relationship between equities and
volatilities, equities and bonds; they are both giving us that same
message you have only had one time before this year.
3. HFT algos want to go to March Highs – Jeff Kilburg on CNBC Fast Money – Thursday, CNBC Fast Money – Thursday, August 16
Mr. Kilburg began by laughing at the stock bears but then seemed to join them as he began speaking about the 10-year Treasury:
- Despite
the fact that bears are growling, we are seeing this chart (S&P
500) provide some strength here..we are 4 handles away from the S&P
testing that [high 4 months prior]; these HFT algos want to go there. So
right now, short term we will see it… bears can argue growth is
slowing, but right now bulls are in charge,.. - I
like to look at the VIX, we saw that weekly close underneath 15; four
instances since 2007, we have seen a sub-15 close in the VIX…two
months after each one of those instances, the S&P 500 falls 6%.. - right now, people are getting over-excited about the Treasury exit, we still have 1.85% in the 10-Year.
4. Stocks overbought & Bonds Oversold – Marc Faber on CNBC Fast Money Half Time – Wednesday, August 15
Mr. Faber usually offers interesting comments. This time is no different:
- We
have had quite a strong tally from a low of 1266 in June up to over
1400. The rally wasn’t convincing… in the last few days the market has
traded in a very narrow range and I think the market is going to break
out of this range. I guess would be on the downside and not on the
upside. The market is already overbought here…. If the market drops
150 points on the S&P, we will have QE3 & QE4….We may have
kinda seen the highs for the year. We may make a marginal new high and
drop again. But I think 2013 will be a difficult year for equities. - The
bond market has quite a lot of downside risk; we are oversold right now
in bonds, we can rebound in the next few days. But I think, probably we
have seen the highs for bonds or lows for interest rates.
After
all this, Mr. Faber laid out a scenario in which S&P can get to
1450, 1500, but pointed out that the advance shows all the signs of a
very mature market rather than the beginning of a new bull market. In
response to a question from FM’s Karen Finerman, Mr. Faber said there
are good companies in Europe selling at distressed valuations.
5. “stock market ahead of itself” – Jurrien Timmer on CNBC Fast Money Half-Time – Wednesday, August 15
Mr. Timmer is director of global macro research at Fidelity, as Fast Money informed us. His views are as below:
- Timmer
– I think the Fed has not done unconventional easing when the TIPS
breakeven spread has been above 2….I also think the Fed has basically
run out of ammunition unless it has another trick up its sleeve like
unlimited QE based on nominal GDP growth targets or something like .
We’ve had this Pavlovian response from investors since 2009 to jump
whenever the words QE are mentioned. I think it’s better to focus on
China and Europe. - Timmer – [we are at these levels today]
in part it’s due to ECB upping its rhetoric on pulling out a big gun
over there. I think it has less to do with the Fed….If you look at
gold at 1,600 now, it was 1,620 back in June when S&P was at 1,269. I
would expect gold to rally more if it was truly a QE rally. I think it
has more to do with short covering by macro hedge fund community which
are short equities. - Timmer
– the official [china] numbers are about 7.6% GDP growth. if you look
at anecdotal data, such as electricity production, korean exports, coal
prices, iron ore etc., I think you are looking more at mid single digits
at the most. If you define a hard landing as 6% or less growth, which
for China would be the definition, I think China is a hard landing. You
can start seeing that in the S&P earnings numbers. - Wapner
– let’s say you’re right and Fed does not do QE3. Do you think the
stock market can go higher as long as the ECB delivers? Isn’t that the
biggest wild card in all of this and may be takes the Fed off the hook? - Timmer
– absolutely. I would imagine that the Fed is hoping that the ECB will
do heavy lifting for it. The question is ECB has raised expectations
quite dramatically a couple of weeks ago and that’s driven a lot of the
rally. The question now is can they deliver on higher expectations and
frankly I have my doubts. - Timmer
– I think the stock market is sort of levitating here. It is almost
eerie. The market is barely moving, everyone is on vacation, volatility
is low. We’re seeing this good rally of 11% off June lows but it is
coming on low volume, diverging technicals, nonconfirmations by a number
of indicators such as copper. the dollar index and gold; Treasury
yields have risen about 20, 30 basis points. But the other indicators
which i usually look to for confirmation are basically where they were
when the S&P was below 1,300. My fear is the market has gotten ahead
of itself here based on perhaps unrealistic expectations of QE.
6. Revisit 2007 Highs in 2012 – Tim Hayes on BTV Street Smarts – Friday, August 17
Tim Hayes is the director of research at Ned Davis Research. He was with BTV Street Smarts for an entire hour from 3-4pm on Friday. But the powers at Bloomberg.com, in their infinite wisdom, chose to only feature 2:37 minutes of his comments.
The clip discusses the Risk-On and Risk-Off indices of NDR. The composition of the indices should be more or less obvious. The on-index contains Energy, Materials, Commodities, Aussie Dollar, SA Rand, High Yield Bonds, while the off-index contains Staples, Health care, Utilities, Long-Term Treasuries, German Bunds, US Dollar.
Mr. Hayes believes that the risk-on phase will continue in the second half of 2012 with implications for the stock market and sectors within the stock market. Mr. Hayes then talks about the indicators they have developed and guess what all of them show that risk-on is doing well.
Below are comments we heard during the interview that are not on the clip. These are as accurate as our memory and our scribbled notes permit.
- The stock market will revisit 2007 highs in 2012.
- Tech is likely to be a leader in the 2nd half of 2012.
- US Economy looking a lot better in the 2nd half of 2012.
- Global policy response having a positive effect.
- 70% of markets have rising moving averages.
But Mr. Hayes believes that a near-term pullback is likely. Predictably, he doesn’t like bonds. He suggests that investors should get out of bonds during the next stock market correction.
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