iBankCoin
Recovering Large Cap Growth PM. How I invest my own money is nothing like how I had to play the insane benchmark game.
Joined May 7, 2014
165 Blog Posts

The Fed Just Blinked And History Suggests That It Is Not Good

Last Wednesday Janet Yellen came up to the podium to discuss the suddenly dovish Fed’s 180 degree turn in policy from raising rates 4 times this year to now only 2 and recognizing the global stresses on the system.  The Fed has been telling the world that they are data dependent but clearly they are not.  Instead they are credit market and S&P dependent.  Anyone with a brain knows that but alas you would be surprised at the number of folks who still think the Fed knows what it is doing.

Essentially the Fed just told the world that things might not be so good after all.  Both Greenspan and Bernanke had to pull 180’s after the business cycle rolled and began to cut interest rates in late 2000 and late 2007 respectively (Chart Below).  What many forget to realize is that both credit and the S&P continued to collapse even as they were both aggressively easing.  I would contend that Janet is extremely behind the eight ball on the burgeoning business cycle decline and is in fact months behind her predecessors in beginning an easing cycle because she never raised rates much at all.

fredgraph

History actually suggests that once the Fed recognizes the problem and acts, like Janet so timidly just did, is not bullish at all but in fact it is quite bearish.  The easing cycle actually kicks off the real meat of the damage in the bear market that is not yet fully recognized by the majority of market participants.  Additionally, time has a role in this drama because charts are both price and time.  It seems, absent crashes, once a top is put in the bulls and bears battle for control until the 9-10 month mark where the bears finally gain full control and the investing public wakes up to some nasty losses.  In the October 2007 top 9 months was July/August of 2008 and we all know what happened after that summer.  In the March 2000 top 9-10 months later was January 2001 when the bear market really started to accelerate.  This time analogue has also worked in other secular bear markets as well.  In 1973 the market peaked in January and then 9 months later after a vicious counter trend rally that took price to within 6% of the ATH the market rolled and collapsed 20% in about 4 weeks (Chart Below).  Additionally, at the top in 1973 we had similar breadth readings (NYSI) as we do now.  Such readings are usually bullish but can give false positives with dire consequences.  The moment of truth is here for the bulls and since most of the bears and shorts have capitulated my belief is that we will top out very soon and launch into a nice decline into the summer.  On Friday I became half pregnant with net short exposure.

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If you are interested below is Janet’s non responsive response to CNBC’s Steve Liesman’s question “Has the Fed Lost Credibility?”

Well, let me start — let me start with the question of the Fed’s credibility. And you used the word “promises” in connection with that. And as I tried to emphasize in my opening statement, the paths that the participants project for the federal funds rate and how it will evolve are not a pre-set plan or commitment or promise of the committee. Indeed, they are not even — the median should not be interpreted as a committee-endorsed forecast. And there’s a lot of uncertainty around each participant’s projection. And they will evolve. Those assessments of appropriate policy are completely contingent on each participant’s forecasts of the economy and how economic events will unfold. And they are, of course, uncertain. And you should fully expect that forecasts for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that alter those forecasts. So, you have seen a shift this time in most participants’ assessments of the appropriate path for policy. And as I tried to indicate, I think that largely reflects a somewhat slower projected path for global growth — for growth in the global economy outside the United States, and for some tightening in credit conditions in the form of an increase in spreads. And those changes in financial conditions and in the path of the global economy have induced changes in the assessment of individual participants in what path is appropriate to achieve our objectives. So that’s what you see — that’s what you see now.

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Bad Karma Is Coming!

This piece is more of a philosophical musing but given the current ominous technical set up on the stock charts I think you will understand what I am trying to say and I will be brief.  While watching The Big Short on New Years Weekend I had an epiphany at the end of the movie.  The movie brought back a lot of painful memories but what struck me was that all the controlled fraud by the top echelon of our elite banking system went unpunished and was put onto the balance sheets of the sovereigns.  The debt did not go away and all the bad Karma associated with those acts have been left to fester and grow.  Since 2009 our institutions are rife with corruption.  The manifestation of Trump and Sanders are evidence that the average person is absolutely fed up.  The economy is not anywhere near the statistics presented to us.  They are lies and a con.  My thesis is that the controlled fraud of the banks has morphed into global sovereign fraud as the debt has become mathematically impossible to service.  Europe is falling apart, the Mideast is in flames and the US is on the verge of massive civil disturbances.  Behind the curtain is a disaster and I am convinced they know they can’t hold it together much longer with all this paper mache printing.

The current chart of the S&P tells me that really bad news is on the horizon.  I have no idea what that news is but it will be bad.  I believe in Karma and we are overdue for some bad Karma.  Remember not one high level executive went to jail.  That will haunt this nation.

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No Man’s Land: Topping Is A Process

I stated over a week ago that the short squeeze would be epic and I was correct about that.  What about the signal to get short that I had discovered?  So far it is inconclusive in that neither bull or bear signal has been triggered.  So where does that leave us right now?  Squarely in NO MAN’S LAND.  Since we last convened here we have seen that the ECB has decided to panic and throw the kitchen sink at the problem with the surprise Investment Grade Corporate bond buying in addition to the other candy.  There is also talk of Chinese Fiscal stimulus and we have the Fed and BOJ on deck this week.  Commodities and credit spreads have improved dramatically and european bank CDS have tightened as well.  Basically it has been a wide spread risk on rally.

Do we have the all clear signal yet?  From a technical standpoint the damage is still on the charts and this rally has not even turned up the declining 200 day moving average yet.  Interestingly the S&P is just below the 2040 level where we launched the crash from in August.  Also the VIX (chart below) is resting on its ascending trend line that has been established since the crash in August last year. In fact it closed on the trend line Friday.  Every time we get to this trend line it has marked a short term top in the market since August within a few days.  Additionally,  something meaningful has happened in the last 4 days.  The Vol of the vol (VVIX) had been making lower lows and lower highs since December and it bottomed out at 79 on March 4th.  Since then it has diverged significantly from the VIX.  The VIX rolled back over but the VVIX has risen back to 92.  It’s a divergence that I will be monitoring as we go through this topping process.  What is says to me is that all is not well just yet.

IMG_5112

Fundamentally credit spreads (HYG Chart below) have improved but only back to levels seen just after the August crash.  The key will be to see if the momentum here stops and reverses.  If it continues to improve then the bear case gets weaker.  If one goes back in history to the financial crisis we had counter trend rallies in credit much larger than this one we are now seeing before the final lows.  I am not convinced that all is well given that the defaults have not even started yet.

IMG_5115

The other issue we have is corporate earnings.  We continue to see earnings growth on a TTM basis (chart below) decelerate since September of 2014 (-11%) which coincided with the end of QE oddly enough.  Currently the PE on the TTM is 21.5 while in June of 2013 the PE on the same amount of earnings was 17.5 at a S&P level of 1650.  Ask yourself this question: Are things better or worse now? Geopolitical risks are higher, credit spreads are higher, default rates are moving up and Trumpism has revealed that the economic statistics in the US are clear fabrications.  Trump would have zero support if that were not the case.  Bottom line the market PE, current earnings and the downtrend on the charts tell me that we will see at least 1650 by Summer.  To be bullish at this valuation level on these earnings you need to see multiple expansion or earnings acceleration.  Given the withdrawal of liquidity since QE’s end and the rate hikes I contend Multiple expansion will be near impossible and I don’t see meaningful earnings improvement due to the rolling of the credit cycle and waning of financial engineering of EPS from QE.  The market will lead improved earnings of course but technically the case can not be made for an improved earnings picture at all.

IMG_5114

My best guess is the market will waste time up here over the next five days to see the hands that the Fed and BOJ are dealing.  Don’t get too complacent as it has not paid to get long stocks or the market when the VIX is at these levels given the new Volatility regime.  My expectation is actually for higher highs this week because too many folks want to short this market which means it won’t roll just yet.  Also we have options expiration week which is notorious for pin action to maximize dealer profit.  We have had an 11% move in four weeks but also keep in mind the last 2 V shaped rallies of October 2015 and October 2014 lasted 26 and 30 days respectively.  This rally is in day 21.  I don’t think we go much higher but I do think we waste time before the next decision by the market.  My strong belief is that this is a countertrend rally in the context of a bear market.  Once we top and roll my expectation is that we take out the February 11th lows and go much lower.  Patience is the key.  If you are a bear don’t get over your skies just yet.

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Epic Squeeze Is Going To A Spinal Tap 11

This is an epic short squeeze.  Hedge Funds are on the wrong side of this as Price Momentum is underperforming Value.  In addition, most of them likely got net short near the lows. Long Price Momentum and short Value was last years relative trade so as the market goes up hedge fund longs are going down or up less than value stocks.  Hence they are losing money in a rising market which is a cardinal sin.  Nigel Tufnel of Spinal Tap is turning the short squeeze up to 11 next week as we are not quite done yet.  My DeMark experts tell me a sell set up emerges sometime next week but from what higher level?   I have protected myself in the insanity and my P&L has been flatish over the last week.

I also want to let you know the market has become very binary due to the NYMO extreme reading above the 94 level.  This has only happened 44 times prior to this one since 1941.  All readings resulted in a pull back but 37 of those went on to new ATHs while the other 7 resulted in swift pullbacks of 20% on average.  My buddy Tim Wood and I discovered this fact and the signal that tells us which outcome will result.  I am not going to divulge that signal as that would be insane, however, I will let you know what I do when the signal is confirmed.  I am 80% sure the bearish result will ensue but because this signal is so binary I am prepared to turn bullish and get long for the first time in 2 years.  Stay tuned as the end or the beginning is nigh.  Don’t be fooled by the fact that the odds of bullish occurrences favors the bulls because if we are in bear market the odds of the bearish outcome are 100%.  The real question question is has the bear market ended?

 

 

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Valeant May Have Just Violated Reg FD Today!

Valeant doesn’t seem to understand the rule of law.  They just withdrew guidance last night, delayed their 10k and it was revealed today that they are now under the formal investigation of the SEC which they knew about in Q4.  The lack of timely disclosure of material information such as the SEC investigation is abhorrent.  Then tonight we learn the company may have violated Reg FD when this item was reported by Reuters:

The company has told a number of large investors that it is optimistic about its 2016 financial guidance, according to people familiar with the matter.

Here is the definition of Reg FD in case you wanted to know:

“Regulation Fair Disclosure, also commonly referred to as Regulation FD or Reg FD, is a regulation that was promulgated by the U.S. Securities and Exchange Commission (SEC) in August 2000. The rule mandates that all publicly traded companies must disclose material information to all investors at the same time.”

I know personally that Valeant has most likely been violating Reg FD for years and that is why it became such a hedge fund hotel and darling.  When I was attending an idea dinner in Boston around 2012 a large hedge fund pitched the stock as an idea.  It sounded like a perfect pitch.  His conclusion was “the street has x estimates for earnings but the numbers are more like 2x.”  I asked him how he knew that and he responded with a wink and a nod and said trust me.  Of course he did not disclose that Pearson told him the numbers but having lived through the 2000 tech debacle I had witnessed this nonsense way before Reg FD was established.  Basically I am guessing the routine was that Pearson would whisper sweet nothings into the ears of these HFs and they would feel special like they were getting an edge on others.  I am sure Pearson would say it in such a way that they were sure they cleverly dragged it out of him because they were so smart.  However, what they all have failed to realize is that Pearson is a psychopath in my opinion and as a psychopath he is a phenomenal con artist.  He was making a number of large HF’s all feel special.  For awhile he delivered them sweet music.

Bill Ackman is Pearson’s largest and best mark.  Bill you have been conned. You are a dupe and your clients are going to get royally screwed unless you flush this down the toilet.  Tonight I am sure you got a call from Team Pearson and you were told that the “2016 guidance may be more optimistic than what was in the press release.”  So the question becomes why would you trust a guy who likely just broke the law?  Do you understand the flawed logic here Bill?  The bottom line is the numbers can not be trusted here and are likely massively fraudulent.  I find it utterly incomprehensible that so many HF’s did not know this was a bullshit roll up from the get go.  Basically these HF’s assigned a growth multiple to a company that bought low growth drug companies with massive amounts of debt and stock, pillaged R&D and then jacked up the prices on we the people and the government.  How long did you guys think this model was sustainable?

I shorted more today as it broke the November lows and doubled my position.  We may try to back test that level tomorrow but the chart says this is done and negative reflectivity will feed on itself.  Let us not forget Moody’s said, before the disclosure of the SEC investigation today, that they may downgrade the debt or that Bill sold 9.6 million OTC 1/2017 Puts with a strike of $60.  My new target is $0-$20.  Many large sharks on Wall Street smell the blood and understand negative reflectivity.  If the $70 level can not be retaken with authority tomorrow all hope will be lost for the remaining holders of this over levered low growth drug company.  Below is the full Reuters News Article:

Shares in Valeant Pharmaceuticals International Inc fell as much as 21 percent on Monday after the drugmaker revealed that it was under investigation by the U.S. Securities and Exchange Commission.

“Valeant confirms that it has several ongoing investigations, including investigations by the U.S. Attorney’s Offices for Massachusetts and the Southern District of New York, the SEC, and Congress,” said Laurie Little, a Valeant spokeswoman.

She said the company confirmed that it “received a subpoena from the SEC in the fourth quarter of 2015 and, in the normal course, would have included this disclosure in its 2015 10-K. We do not have further detail to provide at this time.”

The company’s U.S.-traded shares fell 18.4 percent to close at $65.80 per share.

The SEC probe is separate from an existing investigation into a company purchased last year by Valeant, Salix Pharmaceuticals Ltd, according to a person familiar with the matter.

News of the probe came a day after the Canadian company canceled the release of fourth-quarter earnings, withdrew 2016 financial guidance and said its chief executive had returned from medical leave.

Valeant then attempted to hold a conference call with sell side analysts but later backed out after news of the call was leaked to members of the press, according to people familiar with the matter.

News that the call had been scheduled was first reported by Bloomberg. The cancellation was first reported by CNBC.

Valeant is still holding one-on-one conversations with sell-side analysts and major investors, the people said.

The company has told a number of large investors that it is optimistic about its 2016 financial guidance, according to people familiar with the matter.

It said that it withdrew guidance as a precautionary measure and that investors should not assume that the updated guidance will be significantly lower than what was previously announced, the people said.

Valeant does not expect to file the annual report on its 10-K within the 15-day extension period since it has not yet determined if any restatements are required, the company said in a filing. (1.usa.gov/1Tj2tmX)

In December, Valeant provided 2016 adjusted earnings guidance of between $13.25 and $13.75 per share.

“At this point, investor anxiety is primarily focused on the upcoming earnings report and 10-K,” said Umer Raffat, an equity analyst at Evercore. “They just want to be absolutely sure that it won’t contain any more major bad news.”

The stock has been see-sawing for the past month, often gaining or losing 5 percent or more as speculation has swirled about its future.

The timing of CEO Pearson’s return from severe pneumonia had been unknown, and there was speculation on Wall Street on whether he would return at all.

The full outcome of its board investigation into the relationship with pharmacy Philidor RX Services, now terminated, remained unknown.

Investors have questioned how the company will regain sales of many dermatological products that Philidor sold, and do not know the terms of a new distribution agreement with Walgreens Boots Alliance Inc.

Last week, the company said it would restate earnings to reflect preliminary findings from the board review, adding that it should have accounted for $58 million of revenue later than it did.

Moody’s Investors Service placed the ratings of Valeant under review for downgrade, reflecting concerns that the company’s operating performance is weaker than its expectations. (bit.ly/1T4m6Pl)

(Reporting by Carl O’Donnell in New York and Ankur Banerjee in Bengaluru; additional reporting by Caroline Humer in New York; Editing by Jeffrey Benkoe, Maju Samuel David Gregorio and Sunil Nair)

 

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Ackman’s Buddy Pearson To Return! Valeant Withdraws Prior Financial Guidance!

The absurdity of this discredited Ackman “Platform Company” continues unabated.  Pearson the pneumatic CEO is returning from sick leave after 3 months.  He is no longer Chairman and the company which was going to hold an update call tomorrow has decided to postpone it and has withdrawn all prior financial guidance.  Someone ought to check the debt covenants because I am sure there is a violation somewhere.  Additionally, I know really frail old folks who have recovered in less time than this guy.  Was he busy setting up a family office in a non-extradition country?  I am short this stock because their business model is broken and there is a good chance that the enterprise value of this company is a lot lower with an outside chance of this being a zero shot.  The numbers here can’t be trusted at all.  It won’t be long before the debt holders get even more nervous than they are already.  Basically this was a roll up using its overpriced stock and cheap debt to acquire no growth companies and then they would jack up pricing.  The capital markets are closed to them and the pricing scheme is under congressional investigation.  The SEC is rumored to have an ongoing full fledged investigation as we speak.  Bottom line: with likely fraud having been committed its hard to figure out what this company is actually worth so the stock price needs to go much lower from here.

Then there is also the fact that Bill Ackman owns 8% of this company.  He is under great duress as redemptions are coming fast and furious.  He also thought it was a good idea to add in November.  In that purchase he sold 9.6 million OTC January 2017 Puts at $60 to help fund the trade.  OTC puts are extremely illiquid and must be traded with the dealer who sold them to you.  So as this stock breaks its low of $70 I am sure Bill will need to post some collateral.  This stock is in the death gripes of negative reflexivity and the lower it goes the more stock that will be sold.  What exactly is Bill’s investment thesis at this point? This will go down in the annals of hubris and stupidity.  If we break Novembers low of $69 with authority tomorrow all hell will break lose.

February 28, 2016

J. Michael Pearson to Return as CEO Following Illness, Effective Immediately 

Robert A. Ingram Appointed Chairman of the Board as the Company Separates the Chairman and CEO Roles

Given the Timing of Pearson’s Return, Valeant to Reschedule Call to Discuss Preliminary Fourth Quarter 2015 Financial Results, Deliver Business Review and Provide Updated Expectations for 2016

Valeant Notes Receipt of Paragraph IV Notification on Xifaxan but Remains Highly Confident in its Intellectual Property Rights 

LAVAL, Quebec, Feb. 28, 2016 /PRNewswire/ — Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today announced that J. Michael Pearson returns as Valeant’s chief executive officer following his recovery from severe pneumonia and other complications, effective immediately. Howard B. Schiller, Valeant’s interim chief executive officer, will transition out of his current duties but will continue as a member of Valeant’s Board of Directors. Robert A. Ingram has been appointed Chairman of the Board as the Company has separated the roles of Chairman and Chief Executive Officer.

“On behalf of the Board of Directors, I want to thank Howard and the other members of the Valeant team for their dedication and hard work in Mike’s absence,” said Robert Ingram, Valeant’s Chairman of the Board. “I would also like to thank Howard specifically for his leadership over the past two months.”

“We are delighted that Mike is back as his vision and execution have been central to Valeant’s success over the past eight years, but his illness serves as a reminder of the importance of succession planning,” continued Ingram. “Given the size and breadth of our company, succession planning and building out our senior team to provide additional resources and support for Mike are high priorities for the Board. Our hope is that the Ad Hoc Committee will be able to conclude its efforts soon with regards to financial reporting and internal control matters, so we can all focus on building the best company we can.”

“I want to express my sincere gratitude to Howard for his willingness to step in and lead the company through a challenging period,” stated J. Michael Pearson. “I realize that recent events are disappointing to everyone and it is my responsibility to set the appropriate tone for the organization. My immediate priority will be to build stronger relationships with important constituents, such as managed care and other channel partners, regulators and government representatives, while improving Valeant’s reporting procedures, internal controls and transparency. I will focus on the retention and enhancement of our management teams and employee groups around the world and ensure that we maintain a culture that adheres to the highest ethical standards. Finally, we expect to deliver strong operating performance going forward by working closely with physicians to better serve patients, and we remain committed to reducing our leverage.”

Given the timing of Mr. Pearson’s return, the Company will be rescheduling its previously announced call to discuss preliminary fourth quarter 2015 results, deliver a business review, and provide updated guidance for 2016. In the interim, the Company is withdrawing its prior financial guidance. The Company expects to provide preliminary financial information for the fourth quarter of 2015, and 2016 guidance, in the near term. As previously announced, the Company will delay filing its 2015 10-K pending completion of the review of certain accounting matters by the Ad Hoc Committee, with the assistance of its independent advisors, and the Company’s ongoing assessment of the impact on financial reporting and internal controls. The Ad Hoc Committee is continuing its review of the circumstances relating to those accounting matters and appropriate actions to be taken.

In addition, Valeant confirms that its wholly owned subsidiary, Salix Pharmaceuticals, has received a notice letter dated February 11, 2016 from Actavis Laboratories FL, Inc. (Actavis) stating that the U.S. Food and Drug Administration (FDA) has received Actavis’ Abbreviated New Drug Application (ANDA) containing a “Paragraph IV” patent certification seeking approval to market a generic version of Salix’s Xifaxan® (rifaximin) 550 mg Tablets. Valeant has 22 Orange Book-listed patents covering Xifaxan® 550 mg Tablets that are scheduled to expire between August 2019 and October 2029. Valeant is highly confident in its intellectual property rights relating to Xifaxan® 550 mg Tablets and intends to vigorously enforce such rights in all applicable venues.

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G20 Summit: A Non Event For Risk Assets

The G20 just put out a statement that the world needs to look beyond ultra easy policy for growth.  That is code for: “everyman for himself”.  Therefore there is no coordinated effort to stem the looming credit collapse or global recession that is arriving soon as had been expected by the market.  A large part of the rally we have seen is your typical oversold condition with shorts also covering before the G20 in case they announced a surprise.  It is an understatement to say that this is a big disappointment to the market.  We have had a 160 point S&P rally since February 11th (~8%).  The coordinated cooperation we had since the start of the great recession is over.  The geopolitical tensions and mistrust created over the last seven years has made those halcyon days but a memory.  Next week should be very interesting.

Reuters Saturday February 27th, 2016 11:50 AM EST

The world’s top economies declared on Saturday that they need to look beyond ultra-low interest rates and printing money to shake the global economy out of its torpor, while renewing their focus on structural reform to spark activity.

A communique from the Group of 20 (G20) finance ministers and central bankers flagged a series of risks to world growth, including volatile capital flows, a sharp fall in commodity prices and the potential “shock” of a British exit from the EU.

“The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” said the communique, issued at the end of a two-day meeting in Shanghai.

“Monetary policies will continue to support economic activity and ensure price stability … but monetary policy alone cannot lead to balanced growth.”

Faltering growth and market turbulence have exacerbated policy frictions between major economies in recent months, and the statement also noted concerns over escalating geopolitical tensions and Europe’s refugee crisis.

The reference to “Brexit” had not been included in earlier versions of the text, according a senior official who had seen various drafts, but was added after British officials pressed for it. Britons will vote in June 23 referendum on whether to remain in the European Union.

“Our view is that it’s in the national security and economic security of the United Kingdom, of Europe and of the United States for the United Kingdom to stay in the European Union,” U.S. Treasury Secretary Jack Lew said after the meeting.

VOLATILITY VS FUNDAMENTALS

The G20 ministers agreed to use “all policy tools – monetary, fiscal and structural – individually and collectively” to reach the group’s economic goals.

Christine Lagarde, managing director of the International Monetary Fund, said she sensed renewed urgency among the group’s members for collective action, warning that without it there was a risk that the recovery could derail.

Finance chiefs had agreed that “the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy”, the communique draft said.

To pep up the global economy, faster progress on structural reforms “should bolster potential growth in the medium term and make our economies more innovative, flexible and resilient”, it said.

“We are committed to further enhancing the structural reform agenda,” it added.

Divisions have emerged among major economies over the reliance on debt to drive growth and the use of negative interest rates by some central banks, such as in Japan.

Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said.

The G20, which spans major industrialized economies such as the United States and Japan to the emerging giants of China and Brazil and smaller economies such as Indonesia and Turkey, reiterated in the communique a commitment to refrain from targeting exchange rates for competitive purposes, including through devaluations.

They pledged to “consult closely” on foreign exchange markets.

The world’s top economies declared on Saturday that they need to look beyond ultra-low interest rates and printing money to shake the global economy out of its torpor, while renewing their focus on structural reform to spark activity.

A communique from the Group of 20 (G20) finance ministers and central bankers flagged a series of risks to world growth, including volatile capital flows, a sharp fall in commodity prices and the potential “shock” of a British exit from the EU.

“The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” said the communique, issued at the end of a two-day meeting in Shanghai.

“Monetary policies will continue to support economic activity and ensure price stability … but monetary policy alone cannot lead to balanced growth.”

Faltering growth and market turbulence have exacerbated policy frictions between major economies in recent months, and the statement also noted concerns over escalating geopolitical tensions and Europe’s refugee crisis.

The reference to “Brexit” had not been included in earlier versions of the text, according a senior official who had seen various drafts, but was added after British officials pressed for it. Britons will vote in June 23 referendum on whether to remain in the European Union.

“Our view is that it’s in the national security and economic security of the United Kingdom, of Europe and of the United States for the United Kingdom to stay in the European Union,” U.S. Treasury Secretary Jack Lew said after the meeting.

VOLATILITY VS FUNDAMENTALS

The G20 ministers agreed to use “all policy tools – monetary, fiscal and structural – individually and collectively” to reach the group’s economic goals.

Christine Lagarde, managing director of the International Monetary Fund, said she sensed renewed urgency among the group’s members for collective action, warning that without it there was a risk that the recovery could derail.

But there was no plan for specific coordinated stimulus spending to spark activity, as some investo had been hoping after markets nosedived at the start of 2016. Over the course of the two-day meeting in Shanghai comments by policymakers made clear the divergence of views on the way forward.

Finance chiefs had agreed that “the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy”, the communique draft said.

To pep up the global economy, faster progress on structural reforms “should bolster potential growth in the medium term and make our economies more innovative, flexible and resilient”, it said.

“We are committed to further enhancing the structural reform agenda,” it added.

Divisions have emerged among major economies over the reliance on debt to drive growth and the use of negative interest rates by some central banks, such as in Japan.

Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said.

The G20, which spans major industrialized economies such as the United States and Japan to the emerging giants of China and Brazil and smaller economies such as Indonesia and Turkey, reiterated in the communique a commitment to refrain from targeting exchange rates for competitive purposes, including through devaluations.

They pledged to “consult closely” on foreign exchange markets.

 

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Trying To Top Out

I am sensing through the use of all my various voodoo methods that we may be in the process of trying to top out very soon.  If we are topping out we can do so in one of two ways: 1) a correction in price or 2) a correction in time.  I think we are opting for the first given the continued weakening of credit and the implosion of the underlying economy.  The action of the central banks has been nothing less than frightening. The BOJ has effectively begun the loss of faith in the power of the central banks due to their insistence on implementing negative interest rates which has caused the exact opposite in it’s intended outcome: that being a collapse of the USDJPY and the Nikkei.  We also have James Bullard up tomorrow for a 2 hour interview rehashing what he said last week and I have to ask my self why?  Is he going to Jawbone the markets more ardently tomorrow?  I have established that Jawboning seems to have lost its effectiveness  in causing rallies and prolonged periods of short covering.  Additionally, just in the last week, we also have the seemingly more serious trial balloon of banning cash eminating from Lawrence Summers and the Editorial Board of the New York Times.  The reasoning of course is to prevent the criminal element from thriving.  What a pack of lies.  NIRP does not work if one can hoard physical cash.  The speed with which they are trying to push this cash ban on us makes me believe that behind the curtain is even worse than I thought.  I watch what they do not what they say.  Cash banning is a prerequisite of NIRP policy so this likely means the Fed is quietly freaking out behind the scenes.

If we top out here and take out the 1805 S&P level with conviction then that is extremely bearish.  The reason why is because this would be an extremely left translated intermediate cycle top.  We had an intermediate cycle low on January 20.  If we were to have the intermediate top this week that would be a top in 5 weeks.  The typical intermediate cycle runs 22 weeks from low to low.  An intermediate top here would imply that we would not see the next intermediate term low for 17 weeks or around the third week of June at much much lower prices.  I have been adding shorts again this week and will add more upon confirmation of the turn.  I can’t emphasize enough that the set up here is extremely dangerous and in my mind has a high likelihood of electing.  If the the 1805 level holds then this is just a trading cycle top and we will chop around in a range and correct in time.

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Fed Presidents Have Become Whirling Dervishes

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Whirling Dervish Urban Slang Definition: (n.) A person whose behavior resembles a rapid, spinning object. These actions are often spastic fidgeting and incessant babbling. The actions of the whirling dervish are irritating and annoying, often exhausting other people in the immediate vicinity.

Our friend James Bullard is out pulling a 180 tonight and walking us back from the rate hike talk of December which is just a mere 8 weeks ago.  He is also quoted as saying the Fed could revisit negative interest rates if needed but that we are not remotely close to that scenario now and that no stimulus is needed at present.  Huh? Do you remember in December when he said that we need to understand that employment gains might slow as the economy normalizes and that we should not react to that data as necessarily bad?  He was basically saying in code that “We are going to hike regardless of the bad data that might occur!”  The problem is that the market will not be calmed by this Whirling Dervish jaw boning anymore.  They are looking increasingly scared and foolish.  They also need to get their stories straight as Yellen is not even sure that negative interest rates are legal.

ST. LOUIS (Reuters) – It would be “unwise” for the U.S. Federal Reserve to continue hiking interest rates given declining inflation expectations and recent equity market volatility, St. Louis Fed President James Bullard said on Wednesday in comments that mark a stark change of direction for one of the Fed’s more hawkish inflation foes.

Bullard for much of last year argued for an earlier rate hike, but said he now feels key assumptions supporting higher rates have been undermined.

Inflation expectations have fallen “too far for comfort,” making it more probable inflation itself will fall and continue to miss the Fed’s 2 percent target, Bullard said in remarks prepared for delivery to a gathering of financial analysts.

“I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations,” Bullard said. In addition, declining equity prices and other tightened financial conditions have made dangerous asset bubbles “less of a concern over the medium term.”

Taken together, Bullard said he sees them likely giving the policy-setting Federal Open Market Committee “more leeway in its normalization program.”

Recent comments by Fed officials already made it seem unlikely the U.S. central bank would raise rates when it next meets in March, but Bullard’s comments indicate broad concern over the conditions facing the Fed. Bullard, who votes on the rate-setting committee this year, has been among the stronger advocates of higher rates, but feels the case has grown weaker since the Fed’s “liftoff” rate hike in December.

“Two important pillars of the 2015 case for U.S. monetary policy normalization have changed,” Bullard said.

His comments echo the fears raised by Fed officials at their last policy meeting. According to minutes of that session, released on Wednesday, Fed officials discussed whether a more volatile global environment would throw their outlook for rates off track.

Investors have already pushed expectations for a second Fed rate hike deep into 2016.

Bullard said it may be time for the Fed to consider the value of its quarterly rate path projections. He said that while the Fed wants to be “data dependent,” those forecasts are possibly being construed as an “inadvertent calendar-based commitment” that causes confusion when economic conditions change.

We also have Neel Kashkari the newest Fed President, who has been on the job all of 6 weeks, coming out saying we need to break up the TBTF banks.  Maybe I am too cynical but I think 6 weeks on the job is too soon to come out on CNBC with such headline grabbing statements.

The bottom line is that I smell fear and so can the market.  They need to take this debate behind closed doors and stop all the madness and confusion that they are creating.  The market demands action.  Given some technical indicators I am seeing I think the markets will test the Fed very soon and this rally will burn out like a roman candle.

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High Stakes Poker

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It has become very fashionable to be bearish these days.  We have investment banks coming out and basically saying that we are screwed and that it is game over.  I have never seen investment banks turn so bearish so quickly.  The bottom line is that credit is a complete disaster and one must remember that this equity bull market has been driven by a central bank inspired credit bull market and equities have been a derivative of that paradigm.  The problem is that the piper is now due his pay.  The economies of the world don’t have the cash flow to cover the debt burden on both the corporate and the sovereign side due to horrendous mal-investment world wide.  The Event Horizon nears.

Short-term we do we go from here?  Do the Central banks go quietly into the night or do they have one more trick up their sleeve?  Will they sacrifice the bank or banks  that have the energy derivative old maid and bottom this market?  If I was the head of the Fed, I would control the speed of the decline and draw more and more shorts into the market and then unleash some type of new policy or hint of new policy and cause a massive short squeeze to give the illusion that I still have power.  Perhaps that is the set up going on now.  I am very suspicious that the VIX is only 27 and has not shown real fear yet.  This decline seems very controlled to me.  I am becoming less bearish the lower we go and once I see a spike in the VIX I will be reducing my exposure further.  I have have a feeling that the FED may be holding a pair of Aces for their last hand.  The bottom line is be cautious getting short down here.  Ultimately we are going much much lower but nothing goes down in a straight line.

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