“As the end of the month rolls closer, you’re bound to hear the famous phrase “Sell in May, and go away” debated a lot.
The idea is that based on historical patterns, you do better if you’re out of the market starting in May and re-entering through the summer.
Of course, some will argue that this is just cherry picking and meaningless noise.
We’ll hold off debating that hear, but we did like this chart from BTIG‘s Dan Greenhaus….”
Comments »“China’s unprecedented run of better- than-forecast export growth has spurred deeper skepticism of the data at banks including Goldman Sachs Group Inc., casting doubt on the strength of the recovery.
Gains in overseas shipments exceeded forecasts by at least 7.5 percentage points in December, January and February, the first time that’s happened in three straight months in the eight years Bloomberg has compiled analyst estimates for the data. March figures are due to be released tomorrow at 10 a.m. at a briefing in Beijing, giving the customs administration an opportunity to address the issue.
Overstated exports would mean China is failing to get the boost from global demand that the data suggest as the new government under Premier Li Keqiang seeks to sustain an economic rebound. Theories include companies inflating the value of shipments to bring money into China, according to Nomura Holdings Inc., and exporting the same goods twice as local governments seek to boost data, Goldman Sachs says.
“The recovery in exports is there, but the magnitude probably is much weaker than the official data has been indicating,” saidZhu Haibin, chief China economist at JPMorgan Chase & Co. inHong Kong.
The trade figures are part of a week of China data that started with today’s below-forecast inflation reading and culminate with first-quarter gross domestic product on April 15.
Goldman Sachs said in a March 29 report that investors shouldn’t also be skeptical of the broader growth statistics, because export data don’t enter directly into official GDP.
“Check out this chart of the S&P 500.
Notice something about the past several days?
You might not, because it’s a little hard to read, but we’ve now had 13 straight days of alternating red and white days, meaning 13 straight days of alternating positive and negative closes.
And while Friday was a negative close, today is looking positive for US futures, so it could be 14.
Last week, when the streak was at 11, that was already a record seen not since the early 80s….”
Comments »“Fund manager John Hussman of the Hussman Funds sounds the alarm again in his most recent weekly note.
Specifically, he suggests that the economy is much weaker than most people realize and may, in fact, be in a recession.
And then he observes that corporate earnings, which have driven the stock market to a record high (without adjusting for inflation) are based on record-high profit margins that will almost certainly drop.
First, here’s Hussman on the economy:
While there is no shortage of smug observers who believe that recession risk does not exist and never did, the fact is that the strongest leading indicators, as well as the most timely coincident data, have deteriorated and danced along the border between economic expansion and economic recession for more than two years. Meanwhile, repeated rounds of QE have produced little but short-lived bounces to defer a recession that historically would have followed such deterioration more quickly. The chart below offers a good picture of this process.
Notice the successively lower levels, as each round of quantitative easing has smaller and smaller effects on real economic activity (speculative activity in the financial markets aside)…..”
Comments »“Policy makers steering the global economy have pumped the financial system with so much liquidity that any exit risks popping potential asset bubbles or stunting a recovery, Danish central bank Governor Lars Rohde said.
“The risk is we stay in this climate too long and that the carpet bombing of liquidity spurs inflation,” Rohde, 59, said in an April 5 interview from his office in Copenhagen. Though there are no current signs of consumer price inflation “there is inflation, perhaps a bubble, in some asset classes,” he said. “Equities (MXWO) are trading close to all-time highs. Segments of property markets across the globe, for example London, also display symptoms of this. How do we exit this without killing whatever nascent recovery there might be at that time?”
The warning from the head of Denmark’s central bank, which has kept its deposit rate below zero since July, comes as policy makers in Japan, the euro area and the U.S. deliver unprecedented monetary stimulus to drag the global economy out of the worst crisis since the Great Depression. Easy money has fueled equity prices, helping send the Standard & Poor’s 500 Index to an all-time high on April 2. The yield on Japan’s benchmark 10-year bond hit its lowest on record last week.
“We’re in a landscape where we’ve never been before, with regard to extreme monetary accommodation over a very, very long period of time,” said Rohde, who took over as the head of Denmark’s central bank in February. “What does that end up doing to a society? It’s been a necessary policy, but I have my concerns about what the long-term risks are.”
“Ordinarily in the first post we would recap any of the key overnight events, but in this case there was just one event of note ahead of today’s non-farm payroll seasonally adjusted “noise”: the halting of the Japanese Government Bond complex due to excessive volatility. Now, this is not some zero-liquidity penny stock or an algo fat binary finger: at last check there is one quadrillion yen in Japanese debt, which makes it the second biggest sovereign bond market in the world. Yet one glimpse at what transpired in overnight trading and one can see just why the Japanese regulators decided it is time to close all bond trading. The reason: the JGB’s insane decision to literally reflate or bust, and with it the total loss of all signalling to various asset classes, because while the country is targeting 2% inflation, its bond curve is indicating the most epic deflation in history. The good news: the bond market reopened… eventually; the bad news: who knows if it will, the next time there is a 100% swing from low to high in the 10Y JGB bond yield in the span of hours. Which brings us to the point of this post, summarized best by Deutsche Bank’s Jim Reid who overnight said it best: “we are now flying blind“… The central banks are now flying a plane that has lost all hydraulics and their only option is to add ever more power to the engines to pretend they are still in control.
From DB’s Jim Reid…”
Comments »“Billionaire investor George Soros and Bill Gross, who runs the world’s biggest bond fund, said the Bank of Japan (8301)’s plan to end deflation risks weakening the yen.
“If the yen starts to fall, which it has done, and people in Japan realize that it’s liable to continue and want to put their money abroad, then the fall may become like an avalanche,” Soros said today in an interview on CNBC.
The currency will have to depreciate “much more” for BOJ Governor Haruhiko Kuroda to reach his inflation target of 2 percent, Gross said yesterday.
Soros and Gross chimed in after Kuroda announced plans yesterday to double the BOJ’s monthly bond purchases to about 7.5 trillion yen ($77.8 billion) as it seeks to achieve 2 percent annual inflation in 2 years. Japan’s currency fell 18 percent in the past six months on speculation policy makers were planning to pump more money into the economy….”
Comments »“Our April Fool’s wish: someone in the inner circle of power would finally tell the truth.
In an unprecedented abandonment of his carefully scripted responses to Congressional questions, Federal Reserve Chairman Ben Bernanke unleashed what appeared to be a heart-felt and spontaneous disavowal of the financial and political systems of the United States.
Asked a question about the wealth effect, Bernanke paused and said, “The wealth effect. Ah, right.” He then smiled faintly and shook his head. “You want to know about the wealth effect? Well, I’ll be candid with you. This whole thing is a kleptocracy–the financial system, the political system, it’s one big kleptocracy. That’s the real wealth effect.”
Seeming to find his footing, Bernanke continued with a passion that startled the audience. “You know, I told myself to just repeat the party line for another year so I could step down quietly and let Yellen or another of the toadies take over, but I realized that I can no longer stomach the lies, the obfuscation and the plundering.”
“Yes, I have a plum position lined up at Goldman Sachs after my retirement. You know, give a few speeches and pocket a couple of million dollars, but I am tired of the dirtiness of all this money.”
Leaning into the microphone, Bernanke asked, “Aren’t you tired of the dirtiness of all the money you take? Aren’t you tired of the lies we’re all living?”
“I am supposed to be an expert in economics. So I’ll tell you how the system works in very simple terms. It’s no different from the late Roman Empire, actually. The trick is to get close to the seat of Imperial power, which in our country is the Federal government. You bribe those on the make–there’s always an abundance of them–to grant you special privileges, subsidies, contracts or a monopoly. You skim a great fortune off this proximity to political and financial power, and then you take this fortune and buy a rentier income–you know, thousands of rental homes, farmland, buildings in Manhattan, tax-free municipal bonds, and so on.” ….”
Comments »“Anyone who is telling you the markets began to crack on Wednesday is wrong.
The market began to deteriorate on Monday when the Russell 2000 RUT +0.46% declined 1.6% in what seemed like a matter of minutes. Review the Russell ETFIWM +0.63% for verification.
Small-cap stocks were leading the way up, they have been increasing aggressively for quite a while, this started when the Russell broke above 866 on the first trading day of the year, and on Monday the Russell hit 953. In as fast as it might take someone to secure a loan for a home, the Russell broke out in the Russell stood out until it hit 953.
However, on Monday that seemed to change. On Monday the other markets were resilient but the Russell remained weak. They all experienced a period of intraday weakness, the Dow Jones industrial average DJIA +0.30% , Nasdaq COMP +0.05% , and S&P 500 SPX +0.30% too, but when Monday ended, only the Russell still looked exceptionally weak.
As in all cases where deterioration begins, investors also want to see follow-through to confirm downside moves, and that is again what happened on Tuesday in the Russell.
What’s more, it did not happen in the other markets then. But that may be because the Russell is focused on smaller cap stocks, which usually represent the riskiest category of stocks on the general market. Still, there was follow through to Monday’s weakness on Tuesday and that was important because it told us investors were beginning to take risk off of the table.
We have been talking about this since Monday when this began, pinpointing the double short Russell ETFTWM -1.09% as an instrument that was increasing aggressively as these Russell declines transpired. When I wrote this, TWM was up about 7.2% since the break in the Russell began on Monday..
However, it wasn’t until Wednesday that the Dow Jones industrial average, S&P 500, and Nasdaq actually began to crack. None of these are as broken as the Russell, in fact my observations tell me that the Dow Jones industrial average is still somewhat resilient, but the Russell was leading the way up when the market was surging, so it is no surprise that the Russell leads the market down when the reversal lower begins. If that reversal has already begun the Russell is already leading the way as well….”
Comments »“Global central banks are accelerating mostly ineffective policies because they feel they have no choice but to keep trying, Pimco’s Mohamed El-Erian told CNBC.
Monetary policy took market focus Thursday after the Bank of Japan said it would amp up its bond-buying program in an effort to stimulate growth that has not come despite two decades of similar effort.
But El-Erian, co-CEO of the firm that run’s the world’s biggest bond fund, said markets may have a hard time handling such aggressive measures.
“This is the most experimental we’ve ever seen central banking,” he said during an interview on the “Squawk on the Street” program. “They are venturing deeper and deeper, using imperfect tools, and they’re not getting the response they expect.”
The BoJ measures resemble a similar program by the U.S. Federal Reserve, which has taken its balance sheet past $3 trillion as it has bought government debt in an effort to flood liquidity into the markets and reduce unemployment while stoking inflation.
Both central banks have met uneven success with their efforts. In the U.S., thestock market has zoomed higher, but the economy remains mired to weak growth.
“Rather than step back and ask why (the measures have not succeeded), they just go deeper and deeper,” El-Erian said. “The question is, will they finally succeed in transitioning from assisted growth to real growth, or will it end in tears? I think that’s a major uncertainty and the market doesn’t quite understand just how binary this outcome is.” …”
Comments »“Kyle Bass has been betting that Japan, which has the highest government debt-to-GDP ratio in the world, will eventually lose control of the bond market once investors wake up to this concept.
(Shorting Japanese bonds is known as the widowmaker trade, because it seems like an obvious conclusion to many traders, but it never bears itself out.)
Naturally, Bass is also bearish on the yen. If the Bank of Japan lost control of the bond market, it would presumably be bad news for the country’s currency. So, he’s been doing well in recent months as the yen has quickly declined against the dollar.
Betting against the yen has become one of the hottest trades in the world. A natural extension of that trade for many has been to buy Japanese stocks. After all, a weaker yen usually means higher stocks, as Citi strategist Steven Englander pointed out yesterday.
Bass doesn’t think the “buy stocks” part of the trade is such a great idea.
Kyle Bass was on CNBC today to discuss the BoJ’s decision last night to double the size of its asset purchases over the next two years, and he even went so far as to call those investing in Japanese stocks “macro tourists.”
Below is what Bass had to say….”
Comments »“Goldman Sachs macro analysts Noah Weisberger and Aleksandar Timcenko are out with a new presentation on the state of the global economy.
The title: “Slipping into slowdown.”
According to the data, it looks like the global recovery story may be on hold for now, and markets around the world are not sending encouraging signals.
And some of the most important positive themes are being called into question….”
Comments »“Hustlers. Cheaters. Crooks. American business has always had them, and sometimes they’ve been punished. But today, those who cheat and put the rest of us at risk are often getting off scot-free. The recent admission of Attorney General Eric Holder that systemically dangerous megabanks may escape prosecution because of their size has opened a new chapter in fraud history. If you know your company won’t be prosecuted, a perverse logic says that you should cheat and make as much money for shareholders as you can.
Jim Chanos is one of America’s best-known short-sellers, famed for his early detection of Enron’s fraudulent practices. In deciding which companies to short (short-sellers make their money when the price of a stock or security goes down), Chanos acts as a kind of financial detective, scrutinizing companies for signs of overvaluation and shady practices that fool outsiders into thinking that they are prospering when they may be on shaky financial footing. Chanos teaches a class at Yale on the history of financial fraud, instructing students in how to look for signs of cheating and criminal activity. I caught up with Chanos in his New York office to ask what’s driving the current era of rampant fraud, who is to blame, what can be done, and the ways in which fraud costs us financially and socially.
Lynn Parramore: You’re often characterized as a short-seller. How does fraud become a concern in that context?
Jim Chanos: One of things we like to say is that in virtually all cases of major financial market fraud over the past 20 years, the only people who really brought forth the fraud into the light were either internal whistleblowers, the press, and/or short-sellers. It was not the normal guardians of the marketplace – regulators, law enforcement, external auditors or people like that — that did it. It was people who had an incentive to come forward either for personal reasons or for profit to point out what was going on at the Enrons and the Sunbeams and Worldcoms. Short-sellers played an important role in the marketplace not only in terms of capping, sometimes, irrational exuberance in terms of prices, but also in ferreting out wrongdoing.
LP: Researchers have created all kinds of tools, like software to detect speech patterns associated with lying, to try to detect fraud. What are some of the best tools for catching financial fraudsters?
JC: There’s no single tool that works all the time, and some of them are kind of interesting, like the voice detection, or Bedford’s law, which looks at numbers and repetition patterns in accounting. But we have seen some models that we work with and I teach in my class– frameworks of fraud and fraud analysis – that have been helpful in looking down through the years where we’ve seen patterns continue. One is a wonderful checklist, the Seven Signs of Ethical Collapse in an organization. Some are clearly intuitive, such as a board full of one’s cronies or an obsession with making earnings forecasts. But some are not so obvious, for example, doing good to mask doing bad….”
“The news that initial jobless claims have spiked to 385K is a good time to bring up two big themes we’ve been talking about lately.
One is that people see the economy rolling over a bit.
The other is that people see market internals deteriorating….”
Comments »“Cities may start to use bankruptcy as a tool to skirt obligations the way that airlines have for decades and car companies have done more recently. As AMR, the parent of American Airlines, has been able to reset debt obligations, deals with suppliers and union contracts, the same may be part of the restructuring of cities from Stockton to Detroit. Public finances will never be the same, if one or both cities declare Chapter 9.
U.S. Bankruptcy Judge Christopher Klein is set to rule on whether Stockton can use bankruptcy to abandon its obligations to the California Public Employees’ Retirement System, to which its owes $900 million. The long-time covenants between cities and their employees could be broken as they never have been. Municipal jobs, once considered both safe and an excellent means to a good retirement, will be at risk in a growing number of cities that lost tax revenue during the recession, as they continued to spend and borrow money from the capital markets. In a stroke of irony, the investors that supported these cities may take huge losses themselves.
A number of cities might have gone bankrupt in the recent past. That list would include both Flint and Pontiac in Michigan, which were deserted by the auto industry as sales crumbled and plants moved to areas with more modern facilities and further from the UAW headquarters. And there were the jobs that moved to Mexico and other lower wage markets. Both cities were assigned emergency managers by the state of Michigan that were given dictator-like power. Whether the actions were preferable to bankruptcy will be argued for years….”
Comments »“Improving U.S. economic data, including today’s strong personal income and spending report, has economists cranking up their forecasts for GDP growth.
However, the economy is nevertheless fragile and the risk of a recession is always within sight.
But what could cause the economy to tip into recession?
Some think that it could be premature tightening by the Federal Reserve. Or spillover from the euro crisis. Or a hard landing in China. Or turmoil in the Middle East.
Gluskin Sheff economist David Rosenberg thinks it won’t be any of those. Rather, he thinks if we slip into a recession, it’ll be Washington’s fault.
From Rosenberg…”
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