Here comes your biggest melt-up for stocks since 1998 – MarketWatch 10-30-15

Salient to Investors:

Nour Al-Hammoury at ADS Securities expects stocks to drop in November on the fears of a rate hike in December until the Fed changes its mind again.

Steve Sjuggerud at the Daily Wealth said stocks will soar over the next 18 months because we reached an extreme of fear in August: a la late 1998.

Bespoke Investment Group says the SPX is more than 2 standard deviations above its 50-day moving average, its most overbought level of 2015.

Read the full article at http://www.marketwatch.com/story/here-comes-your-biggest-melt-up-for-stocks-since-1998-2015-10-30-9103015?mod=MW_story_recommended_default&Link=obnetwork

Click here to receive free and immediate email alerts of the latest forecasts.

Retail investors are the most bullish, and least bearish, in 8 months – MarketWatch 10-29-15

Salient to Investors:

AAII report 40.4% of individual investors expect the stock market to rise over the next 6 months, versus 34.8% a week ago, and the highest since February. 20.6% were bearish, the lowest since February.

Retail investor sentiment is often cited as a contrarian indicator.

Read the full article at http://www.marketwatch.com/story/retail-investors-are-the-most-bullish-and-least-bearish-in-8-months-2015-10-29

Click here to receive free and immediate email alerts of the latest forecasts.

Brands that make consumers emotional outperform the S&P 500 over time – MarketWatch 10-07-15

Salient to Investors:

MBLM found that from 2005 to 2014,  companies with intimate brands averaged 5% more revenue growth and 11% more profit growth than the S&P 500 index. The top-performing industry in the US was the auto industry, suggesting scandals did not dent customer enthusiasm.

Mario Natarelli at MBLM said only a quarter of the 52,000 brands surveyed evoked intimacy with their customers.

The top ten were, in order: Apple, BMW, Toyota, Amazon, Harley-Davidson, Disney, Coca-Cola, Whole Foods, GMXC and Samsung.

Read the full article at http://www.marketwatch.com/story/brands-that-make-consumers-emotional-outperform-the-sp-500-over-time-2015-10-06

Click here to receive free and immediate email alerts of the latest forecasts.

Looking for the lifeboats – The Economist 09-19-15

Salient to Investors:

  • Both equities and government bonds are overvalued but are unlikely to fall in tandem. Long-term investors should ignore short-term market declines because over the long-term, asset prices rise – US equities overcame the dotcom bubble and 2008 financial crisis to reach record highs in 2015.
  • However, equities could be in for a long slow decline, a la Japan, the first rich country to fight deflation and zero interest rates. Japanese equities are still down 50% since the end of 1989, while bond yields have remained very low since the late 1990s. At least Japanese investors could have escaped into foreign assets, but that option is narrowing because all the developed world faces deflation, including emerging markets.
  • Robert Shiller at Yale said more investors fear US stocks are overvalued than at any time since 2000. Deutsche Bank says government bonds are the most expensive they have ever been.
  • AQR research found that:
    • In the 10 worst quarters for global equities between 1972 and 2014, equities lost more than 18% on average, bonds gained 4.8%, commodities and gold gained. Corporate bonds lost value, relative to government bonds.
    • In the 8 bad equity quarters since 1990, hedge funds lost and average of 5.2%, excluding trading costs and fees, but a combination of value, momentum, carry, defensive and trend-following strategies would have produced very good returns, excluding trading costs and fees.
    • In the 10 worst quarters for government bonds between 1972 and 2014, bonds lost 3.9% on average, while equities gained 3.5% on average thanks to a big gain in Q2, 2009, gaining in 6 of the 10, and commodities rose.
  • In the 10 worst quarters for government bonds, cash averaged a small gain.
  • Back-testing strategies is unsafe because there is no guarantee that they will be as successful in future.

Read the full article at http://www.economist.com/news/finance-and-economics/21665026-which-investments-work-best-when-markets-decline-looking-lifeboats

Click here to receive free and immediate email alerts of the latest forecasts.

Jim Simons: A rare interview with the mathematician who cracked Wall Street – TED.com 09-03-15

Salient to Investors:

Jim Simons at Math for America said:

  • In the old days, commodities or currencies had a tendency to trend. Trend-following was great in the ’60s, sort of OK in the ’70s,  but not OK in the ’80s.
  • You look for anomalies in the data, when efficient market hypothesis is incorrect. Any one anomaly might be random but with enough data you can tell that it is not. If an anomaly is persistent for a sufficiently long time, the probability of it being random is not high. However, these things fade after a while and anomalies get washed out.
  • My hedge fund charged the highest fees in the world at one time: 5% and 44% of the profits.
  • Bringing science into the investing world has reduced volatility, increased liquidity, narrowed spreads.

Watch the video at http://www.ted.com/talks/jim_simons_a_rare_interview_with_the_mathematician_who_cracked_wall_street?utm_source=newsletter_daily&utm_campaign=daily&utm_medium=email&utm_content=button__2015-09-03 or read the full transcript at http://www.ted.com/talks/jim_simons_a_rare_interview_with_the_mathematician_who_cracked_wall_street/transcript?language=en

This Is Not A Retest – Its A Live Bear! – David Stockman’s Contra Corner 09-03-15

Salient to Investors:

David Stockman writes:

US stocks are in a bear market. Honest financial markets would have sold off long ago, but for central bank falsification of asset prices.

The S&P 500 is at 20 times trailing earnings as of June 2015: $97.32 per share versus $103.12 at the end of Q2, 2014, and the peak of $106 at the end of Q3, 2014, and $85 in mid-2007, when the S&P multiple was 17.6 times just before the crash. The gap between reported GAAP earnings and projected earnings – $35 per share – is the same now as then. At the end of Q2, 2008, LTM GAAP earnings had fallen to $51 per share, and by the end of Q2, 2009 to $8 per share.

The financial bubble is far bigger than in September 2008, and the global economy fundamentally much weaker.

The US faces an unprecedented global monetary deflation. Output and trade are falling nearly everywhere, including Canada, Mexico, Brazil, Australia, South Korea, Malaysia, Indonesia, Russia, Japan, the Persian Gulf oil states, and China.

Brazil is heading into depression and its worst recession in the last half century. It is leading the global monetary reversal now underway. In its boom, Brazilian wealth bought condos in south Florida, while US money managers invested hundreds of billions of dollars into Brazilian equity and bond markets. The US economy was not decoupled from Brazil during the boom and won’t decouple during the deflationary bust ahead. The flight of hot dollars from Brazil is an indication of the turmoil ahead as the massive dollar short unwinds on a global basis.

 

Read the full article at http://davidstockmanscontracorner.com/this-is-not-a-retest-its-a-live-bear/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Thursday

Click here to receive free and immediate email alerts of the latest forecasts.

Is A Bear Market Starting? Prepare To Be Mauled, Down And Up – Seeking Alpha 08-24-15

Salient to Investors:

Miles Hoffman writes:

  • Expect at least a 20% move down, and a seasonally bearish Fall.
  • Bear markets have two phases, and can move down and up sharply. The first is where the leading sector of the prior bull market goes into a bear market, while other sectors hold up or perform well. Some sectors perform better in bull markets, others in bear markets. The second phase is capitulation where everything declines.
  • There are long-term secular bull and bear markets and shorter-term cyclical bull and bear markets. Secular bear markets are very volatile, but secular bull markets are usually less volatile and are mostly straight up. A cyclical bear market within a secular bull market, or correction, is not very volatile, excepting 1987.
  • Investors should study behavioral finance.
  • Long-term returns from buying high PE multiples are miniscule.
  • Keynes said that markets can remain irrational a lot longer than you and I can remain solvent.
  • The biggest cyclical bull market move up was in the 1930s bear market.
  • Almost everyone reading Seeking Alpha are not buy and hold investors.
  • Investors put twice as much emphasis on losses.
  • Making money in a bear market is difficult and emotionally draining. There were 9 moves of 20+% in the 1930s bear market that occurred in 27 months. It makes more sense to try to make money on the downside by using inverse ETFs, if you can handle the volatility. You can go short in an IRA with an inverse ETF.
  • The reason that in bear markets some sectors crash while others soar is because professional money managers have to be invested. Clients dislike paying a fee for being in cash. Cash levels are usually 5% or less – the most I have seen is 15%, which took as much explaining to clients as losing stocks.
  • Almost all professional money managers are closet indexers and keep their sector weighting fairly close to those of the S&P 500.
  • Staples, healthcare, and utilities are leading sectors going into a bear market because even in a poor economy, people have to eat and heat.
  • Recession depresses cyclical industry revenues and earnings and drives the stocks to low valuations.
  • The 2000 market top was the last “honest” top, a single sector led bull with a blow off top, driven by the internet and a booming economy.
  • The 2007 market top was a dishonest top, driven by many sectors, and created by a shady Fed which lowered interest rates and diverted the “2000 winnings” into the housing market.
  • The current bull market has no foundation, like the internet revolution, just rot. It was not led by China, which crashed hard to a bottom in 2009, then bounced for a year, before going sideways, violently, for 5 years.
  • The market’s moving averages are sending warnings.
  • The Dow Industrials moves though its lows is being confirmed by the Dow Transports.
  • Bond market traders are smarter than equity traders, so the ratio of junk bonds relative to higher grade corporates is a valuable indicator.
  • High beta stocks relative to low beta stocks is bearish.
  • Small cap to large cap is bearish.
  • The ratio of stocks above and below their moving averages is bearish.

Read the full article at http://seekingalpha.com/article/3462356-is-a-bear-market-starting-prepare-to-be-mauled-down-and-up?ifp=0

Click here to receive free and immediate email alerts of the latest forecasts.

This Week’s Market Sell-Off May Not Be Such a Bad Thing – The New York Times 08-21-15

Salient to Investors:

The market drop this week looks more like a trivial downward bounce within a consistent range and a much-needed breather than a catastrophe in the making.

Markets were priced for perfection in a world economy far from perfect.  $100 invested in stocks still buys only $5.59 in earnings, versus $2.08 for Treasury bonds.

From mid-2009 to mid-2014, stock prices rose much faster than earnings, GDP, all other fundamentals.

The global glut of investment capital has created a mismatch between the global economy and financial markets.

Josh Brown of Ritholtz Wealth Management said that 2015 is the first year since the recovery began where the real economy is outperforming the financial economy.

The emerging markets crisis of 1997 and 1998 were followed by a blockbuster year, 1999, for US economic growth and corporate earnings.

Investors who panic at the thought of losing 6% in a week should not be invested in the stock market.

Read the full article at http://www.nytimes.com/2015/08/22/upshot/this-weeks-market-sell-off-may-not-be-such-a-bad-thing.html

Click here to receive free and immediate email alerts of the latest forecasts.

Here Are the Ominous Signs a Crushing Stock Market Correction Looms – TheStreet.com 08-15-15

Salient to Investors:

James Hickman writes:

  • Uninterrupted streaks in which the S&P 500 closes within 10% of its all ­time peak historically precede sudden declines: viz the tech bubble of the 1990s and the credit/housing bubble of the 2000s. The median decline from the peak is ­43% and typically takes 13 months, while the median annual market total returns over the following 10 years from the peaks is only 2.5%.
  • The high cyclically adjusted P/E ratio predicts below ­average stock market returns for the next decade ­­.
  • The low levels of the CBOE Volatility Index and CBOE SKEW Indices signal investor complacency.
  • 11 countries – 67% of the global economy – have had decelerating GDP growth for several years.
  • Sovereign debt levels above 90% have often led to reduced federal spending and increased taxation, and significantly slower economic growth.
  • Population growth is flat in the developed countries that comprise most of the global economic base, while productivity growth has been decelerating. Nearly all future population growth will be in the LDCs.
  • US corporate growth has come primarily from cost-­cutting, with profit margins nearly 70% above the long­-term average, meaning growth cannot continue without top­line growth.
  • Since 1964, the premium of the 10-yr US Treasury yield over its long-­term average has accurately predicted stock market declines 71% of the time: the premium is currently 2.5% versus the average yield of more than 5%.
  • Long-term interest rates are unlikely to rise meaningfully before 2017, so this is not yet bearish: since 1960, the direction of interest rates has predicted market stability 83% of the time.

Read the full article at http://www.thestreet.com/story/13257758/1/here-are-the-ominous-signs-a-crushing-stock-market-correction-looms.html

Click here to receive free and immediate email alerts of the latest forecasts.

Birinyi Says You Can Toss Out the Old Tools for Calling S&P 500 – BloombergBusiness 08-05-15

Salient to Investors:

Laszlo Birinyi said:

  • The market is now so dominated by institutional investors, hedge funds and service industries, that sentiment drives prices more than anything else, so predictions based on valuation data going back a hundred years are bound to fail. Recent developments in Amazon, Google, and Chipotle clearly show this is not your grandfather’s market.
  • “This time is different” and “greed and fear are constants” are only clichés.
  • Using cyclically adjusted P-E ratios going back to 1926 would have predicted the S&P 500 returning less than 1 percent a year in the decade after the dot-com bust instead of the actual return of almost 5 times as much.
  • 3 of the 4 biggest bull markets of the last century have occurred since 1982. The S&P may not be cyclical. If this bull market mirrors the performance of the 1990 bull market, then the S&P 500 will rise to 3,200 over the next 2 years.

Read the full article at http://www.bloomberg.com/news/articles/2015-08-05/birinyi-says-you-can-toss-out-the-old-tools-for-calling-s-p-500

Click here to receive free and immediate email alerts of the latest forecasts.