El-Erian: The Yen is a Nightmare for BOJ; A June Fed Hike is Less Likely After Jobs Report

El-Erian weighs in on a sundry of things that you should be paying attention to. He covered the yen, jobs, the Fed and the status of the bond market.

In last week’s Exodus recap, I talked about how an overbought condition in Exodus was actually a good thing, which typically precedes higher prices with highly impressive backtest data. If you recall, I predicted the markets would remain firm through last week and fade towards the end, when the overbought condition had worn off.  Judging by Friday’s trade, that’s exactly what happened.

First things first, I was paid a dividend in my TLT position–reducing my coast basis to $119.37–putting me ahead by 11.6% for the year. That’s on a government bond lads. Pay attention.

Next, the semis are showing signs of being in an overbought condition, as well as the MSCI index, which is essentially Asia, ex-Japan.

In addition to that, we’re getting OB signals in coffee, XLB, URE, IGN and EGPT, and about 25 stocks. It’s worth noting, this isn’t a vast amount of names in an overbought condition. Friday’s sell off reduced the technical rating by about 5% for all the stocks in the system.

On the oversold side, there are 55 stocks and ETFs. Most of the OS ETFs are downside bearish ones, except for TAN.  Of the bearish ETFs, the most impressive and alarming of the group is QID, downside NASDAQ.

If we’re to form an opinion based on the data alone, then expect a sharp pullback in the NASDAQ to the tune of 1-1.5% early next week, followed by a rally to end the week flat. However, in almost all of the algorithms I am reading, this should be the last week of malaise, as the week after next points to be a harrowing one for those positioned long.

In short, books profits, buy the dips early this week, but get the hell out before the close on Friday.

Post money management career has been an interesting adjustment period for me. In the past, I’d wake up to harrowing news and lament over outsized losses and go about my day servicing clients who thought the world was ending. Now I view the news as an outlet to express myself on the bloggery. If it weren’t for the site, I’d probably play chess all day in the park with homeless people.

A little more than a year ago, one of my top picks was SLCA. I liked the idea of playing the fracking revolution and ripping off drillers, charging them exorbitant amounts of coin for cheap sand. When oil topped out, the sand companies got shredded to pieces–based on the sentiment that fracking was dead and the sand companies were entirely fucked.

Lo and behold, oil has climbed by 100% this year and sand companies are some of the best performers for 2016.

There are 4 companies of note for the space.

FMSA +185%

HCLP +80%

SLCA +70%

EMES +25%

Last week, the Baker Hughes oil rig count reported a net increase of 9 to 325, the largest increase in a year. These numbers are still woefully depressed, coming down from a peak of 1,600 rigs back in 2008. However, the market viewed this as a potential bottom in drilling activity and bid up the shares of sand companies to no end. Putting skepticism aside, these are some of the most heavily shorted stocks in the market. If, indeed, the rig count continues to climb and drilling activity ramps up, with the support of higher oil prices, you won’t find a better sector to invest in.

Naturally, the other side of this story is the fact that a whole slew of drillers will likely go bust inside two years and that the recent 100% increase in crude is unsustainable, considering the fact that supply hasn’t really been destroyed and demand isn’t really increasing. If the global economy is about to slow, like many people believe, you will rue the day you went long sand stocks, post 100% increase in share price.

My favorite of the group is SLCA–but I’d rather drive a stake through my own heart than buy it up here.

One ancillary group of stocks who benefit from an increase in sand activity are the rails. If you’re bullish on sand, you’ve got to like the rails here too. The top rated rail stocks, according to Exodus, are UNP, CSX and GWR. It’s also worth noting that a Trump administration will be lenient on frackers, possibly paving the way for wanton exploration in all sorts of environmentally sensitive areas. Prepare to light your tap water on fire.

A former civil war veteran sheds his identity and adopts the American Indian culture, just before their extinction. This guy’s life truly sucked, having to fight those crazy as batshit southerners and then a sundry of new enemies in the western front.

This is a very atmospheric period drama, one that illustrated the warrior spirit of the American Indians, but also, tragically, their inability to survive as a society.

The systematic extermination of the American Indian was one of the worst cases of genocide over the past two hundred years. Actually, it started way before that with the Dutch and British having their way in the northeast, circa 17th century. It has been a very long and arduous experience for natives.

A few years ago, on a road trip to New England, I stopped by the Plymouth Rock and was surprised to learn, up until this day, every Thanksgiving natives travel to the Rock to lament about ceding America to Europeans. It’s a holiday of great sorrow for them and they, generally, hate the fucking rock and its symbolism.

Democrats= less freedom.

In spite of the fact that our good friend, Ramp Capital LLC, has dedicated his life’s work towards the purchase of SPY contracts between the minutes of 3:30-4pm, every single day, one only has to gaze into the mirror to know that this is a plan forged in an asylum, destined for failure.

While some of us traverse handicap ramps, hoping to sneak into the DMV before 4pm, others are Captain’s of gigantic arks, festooned with zebra, giraffe and other African wild-life, even humans!

Ladies and gentlemen, the ramp that you so slavishly adored, caressed like a retarded monkey on its death-bed, has been shattered to pieces by marauding bandits, globalists who’d love to see your investment banking gig ‘transcend’ into a 9-5 at Walmart. All of your monies are theirs, thrust into digital accounts by which interest is drawn from and not granted. It’s an Orwellian nightmare come true, a cashless society of transvestite, gunless, cowards, protesting for freedom to urinate in gender neutral lavatories, whilst every God given freedom, every decent thing about mankind, is left in ruins.

BEHOLD, the catamite economy, as you transfix yourselves into a state of abhorrent intoxication, destined for extinction.

Happy Friday!

The gurus at JP Morgan, home of the London Whale, have an economic model that use consumer sentiment, manufacturing sentiment, building permits, auto sales and unemployment to predict the future, in economic terms (extra Gartman). The chances of a stark raving mad recession over the next 12 month has jumped from 30% to 36% from May 5th.

“Our preferred macroeconomic indicator of the probability that a recession begins within 12 months has moved up from 30% on May 5 to 34% last week to 36% today,” JPMorgan’s Jesse Edgerton wrote. “This marks the second consecutive week that the tracker has reached a new high for the expansion.”

JPMorgan’s proprietary model considers the levels of several economic indicators, including consumer sentiment, manufacturing sentiment, building permits, auto sales, and unemployment.

The probability of a recession occuring in the next 12 months has never been higher, JPMorgan says.

“The unemployment rate enters the model in two ways,” Edgerton explained. “As a near-term indicator, we watch for increases in the unemployment rate that occur near the beginning of recessions. So this morning’s move down in the unemployment rate lowered the recession probability in our near-term model. But we also find the level of the unemployment rate to be one of the most useful indicators of medium-term recession risk. So the move down in unemployment raises the model’s view of the risk of economic overheating in the medium run and raises the ‘background risk’ of recession.”

The ‘background risk’ of a recession is poppycock. The numbers aren’t too daunting, at 36%. Even if there was a recession, from an investment standpoint, that might be beneficial. The earnings recession has been embedded in the market since 2014. If we confirmed recession, it would give the next President the clout he needed to enact aggressive fiscal stimulus and not depend on the speech givers at the Fed.

Let’s not forget, any economic drawdown will be met with feverish QE.

Doublespeak, son.

It’s the globalization of the Federal Reserve, an institution, like Michael Knight (extra kit),  who does not exist in the government’s eyes and has never been audited. Brainard makes the case to ‘moderate’  Fed tightening, in spite of the fact there has never been a Fed tightening cycle with so many months in between hikes than now.

They’re fucking with us. The Fed has jawboned for higher rates over the past 6 month, with relentless stupidity. Following one milquetoast jobs report, Brainard is out talking greasy about the Fed needing to chill the fuck out because China is fucked.

“In this environment, prudent risk management implies there is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals,” Brainard said in a speech on Friday in Washington.

“Several factors suggest that the appropriate path to return monetary policy to a neutral stance could turn out to be quite shallow and gradual in the medium term,” she told an audience at the Council on Foreign Relations.

“While the easing in financial conditions since mid-February is very welcome, it is important to recognize that some of the conditions underlying recent bouts of turmoil largely remain in place, and an important reason for the fading of this turbulence was the expectation of more gradual U.S. monetary policy tightening,” she said.

Global markets remain fragile, she said, with sensitivity to exchange-rate movements remaining elevated. That is consistent with research suggesting “cross border financial transmission is likely to be amplified” as long as interest rates set by major central banks remain near zero, she said.

“The fragility of the global economic environment is unlikely to resolve any time soon,” she said.

“We cannot rule out a significant adverse reaction to such an outcome in the near term, such as a substantial jump in financial risk premiums,” she said. “Because international financial markets are tightly linked, an adverse reaction in European financial markets could affect U.S. financial markets, and, through them, real activity in the United States.”

QE for life. The story ends with a hydrogen bomb detonation.

I have several portfolios in Exodus to track risk. The Bubble Basket is the riskiest shit on the face of the earth, whole index members deserve death. It’s down 1.95% today.

The Old Man portfolio was constructed as a counter-balance to the Bubble Basket, built around the same time. It is higher by 0.18% today.

Year to date, the BB is off by 14%, while the OM is higher by 10%.

What does it all mean, cocksuckers?

It means that if you weren’t speed chopping carrots with your balls on the table, long commodity stocks, you lost money play momo in 2016. The money has gone, consistently, into the yield camp.

Work hard. Invest your money. Double it every 5 years or so. Repeat.

All of the things we’ve seen coming out of retail was communicated in the May jobs report. Things definitely got slower and Cramer tries to piece it all together.