Perspective: Forced Buyers of Risk

nice piece. How about this for perspecitve on the "fix" for yield in a ZIRP world. Along the uptrend, I spy another roadside signpost...

Forced Buyers of Risk

FOBOR or FUBAR?

In a no-yield world, many perceive themselves as ”forced buyers of risk” (FOBOR). By way of example, the Financial Times reported the following note from BofA Merrill Lynch:

In a world of zero rates, where $19.4 trillion of government bonds (that’s 48% of the total market) is trading below 1%, it’s little wonder the “lust for yield” is as strong as it is. Last week Rwanda offered 6.875% 10-year bonds to borrow $400mn, an amount equivalent to 5.5% of its 2012 GDP. The offer was 9-10X oversubscribed. And Panama successfully issued a $750mn 40-year bond with a 4.3% coupon (note that in the past 50 years the US 30-year Treasury bond has traded below 4.3% for just 10% of the period).

In what universe does it make sense for people to fight to loan Rwanda money at 6 7/8 percent?

Graphic: Homebuilders vs Lumber Prices

Through visual inspection, note how they typically correlate rather tightly. The divergence accellerated in mid April to now. Wait for a trendline break of the beginning of April speedline uptrend in the homebuilders if you want to short the growing divergence. Upon price breaking below the speedline, use the most recent high as a stop.

Graphic: Days Since a >= 5% Correction

Just an fyi....


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Magazine Cover: Wall Street Is Back

So here is another magazine cover to appear after the Barron's cover of a few weeks ago.

The trend remains up. Stick with the trend. Realize that it's getting obvious. The more obvious, the later the stage and rougher the ride may get. 

UPDATE: Delay in Posting

I just passed my Chartered Market Technician Level 2 exam last weekend. I spent time preparing versus blogging. I will be posting more shortly.

Jeffrey Sachs Calls Out Wall Street Criminality and Pathological Greed

nice piece


Jeffrey Sachs Calls Out Wall Street Criminality and Pathological Greed « naked capitalism:

Jeffrey Sachs Calls Out Wall Street Criminality and Pathological Greed

One of the things that Matt Stoller has stressed that the possibility of reform is remote until breaks within the elites take place.
Jeffrey Sachs, Columbia professor and director of the Earth Institute at Columbia, is a controversial figure for his neoliberal stance on macroeconomics and his role in promoting the use of “shock therapy” in emerging economies. But it is also important to recognize that criticism from a connected, respected insider has more significance than that of someone like Bill Black, who has made a career of taking on bank fraud but has never reached a top policy-making level.
This talk is blistering at several points. It was recorded at a conference “Fixing the Banking System for Good” on April 17 (hat tip Jesse). If you have trouble with the embedded version, try YouTube.

Some of the blunt parts:

(3:10) I know that Summers, for example, continued really institute moral hazard policies right and left by fighting against any limits on compensation of these people who had entered into the breach.
(3:48) …a lot of what’s happened and what’s been revealed is in my view prima facie criminal behavior. It’s financial fraud on a very large extent. There’s also a tremendous amount of insider trading. You can even watch it when you are living in New York, how that works.
(12:30) I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I’m going to put it very bluntly. I regard the moral environment as pathological. And I’m talking about the human interactions that I have. I’ve not seen anything like this, not felt it so palpably. These people are out to make billions of dollars and nothing should stop them from that.
They have no responsibility to pay taxes, they have no responsibility to their clients, they have no responsibility to people… counterparties in transactions. They are tough, greedy, aggressive, and feel absolutely out of control, in a quite literal sense. And they have gamed the system to a remarkable extent and they have a docile president, a docile White House and a docile regulatory system that absolutely can’t find its voice. It’s terrified of these companies.
If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I’m afraid to say…and both parties are up to their necks in this. This has nothing to do with Democrats or Republicans. It really doesn’t have anything to do with right wing or left wing, by the way. The corruption, as far as I can see, is everywhere.
But what it’s led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it’s very very unhealthy. I have waited for four years, five years now, to see one figure on Wall Street speak in a moral language and I’ve not seen it once. And that is shocking to me. And I’ve waited for a judge, for our President, for somebody and it hasn’t happened. And by the way, it’s not gonna happen any time soon, it seems.

Clearly, Sachs is not taken by Lloyd Blankfein’s “doing God’s work” claims, nor by the hectoring of overstretched consumers to make their debt payments after banks got overt and back door bailouts, and continue to be subsidized by savers via ZIRP.
We can only hope that Sachs’ direct talk emboldens others at his level to speak up.

Read more at http://www.nakedcapitalism.com/2013/04/jeffrey-sachs-calls-out-wall-street-criminality-and-pathological-greed.html#xeBqWPL3aII4dUkq.99 

Trend Change Day Up on 4/23

A Trend Change Day up occurred on 4/23 with a higher volume, strong rally of 1.2% or more. The market has held those gains. The contrarian Barron's cover, if it will coincide with a top, happens within six days. It appears a false signal. Europe bets on a buy the rumor rate cut from the ECB which creates a rising tide and staves systemic concerns. News flow remains very negative across the pond and their bourses rally. That's hallmark bull market action. The Hindenburg window remains open for another month. I reapply risk with half size positions. A fresh breakout on volume in the SP 500 above the April highs will trigger full size positions.

Earnings breakouts of ATNH winners include SILC and ANGI. I notice how strong the homebuilders rally. LNKD reports this week.

Magazine Cover: Barron's DOW 16,000

So you can read my last post here on some large negative issues in equityland. Leadership erodes.

Saturday the Barron's cover below appears.  Large font and a gloating picture coming on the heels of the aforementioned negatives. It's a nice bearish setup.

Magazine covers like Barron's tend to call a top within 6 trading days. The most recent near term top and subsequent breakdown/breakout failure/bull trap already occurred. In this case, the six day window applies to continued downside follow-through.

Barron's is a second tier cover compared to Time/Newsweek rag mags that deal with non-financial matters.  Emotional covers on those tend to precede longer trends. Barron's time constant tends to work up to three months when it does.

Heavy volume breakdown this past week in the Spoo futures, leadership came under broad pressure, and a Hindenburg triggered with the large new high/new low bifurcation (the hardest parameter to achieve). While I am already flat protecting profits, the cover below made me smile. Nice cherry on the bear icing to coincide with the already large technical damage hint.

From Barron's cover story:

The stock market isn't the only thing that has set records this spring. Barron's semiannual Big Money poll of professional investors also is setting a record -- for bullishness, that is. In our latest survey, 74% of money managers identify themselves as bullish or very bullish about the prospects for U.S. stocks -- an all-time high for Big Money, going back more than 20 years. What's more, about a third of managers expect the Dow Jones industrials to scale the 16,000 level by the middle of next year, notwithstanding a dismal week of selling that left the blue-chip index at 14,547.51 on Friday.

Edit:  Here is a chart from investment manager John Hussman that shows previous similar Barron's covers. Notice that one coincided with sideways chop and the second was early but preceded a very sharp drop.

Hindenburg Triggered

Go here for a Hindenburg synopsis.

Monday was the first observation and Wednesday the second. It takes two for the dirigible to tango.

It's a melodramatic name but the situation it observes is odd and dangerous based on historic testing. Ignore the name. Focus on what it measures. Surging new highs and lows at the same time shows a growing, unstable bifurcation occurring in an uptrend. Big swoons come after. Not all, but enough to give me cause for pause.

The Hindenburg window for a small to large decline is 36 days starting today. They can take till the end to complete or start right away. The most recent Hindenburgs have failed or shown a tiny decline so I kinda think (fuzzy logic algorithm) this one will go deeper. The flashcrash never threw a Hindenburg. Back during the 2008 bear debacle with threw multiple Hindenburgs, the indicator got saturated with headlines. This trigger gets nothing. A contrarian ignored pot risk boiling quickly in the trading business.

Also, the Bloomberg US financial conditions index, while high, has clearly broken down. The European version is much lower comparatively and has broken down as well. Both indicators are an amalgam of credit spreads, indicators that show the placidity or turbidity of underlying credit (mostly) conditions. Credit is equity foundation. Credit conditions are system leverage foundation.

It's gone back to yuk for growth. Protect assets. Odds feel (fuzzy I know) high for an outsized swoon. Commodities like Dr Copper tank. The other industrial metals tank. Crude tanks. European aftershocks from Cypress and the contracting EU economy weigh. The linchpin German DAX tanked yesterday and made fresh four month lows. I wonder what the fleeing bank asset picture looks like over there in the peripheral countries (Portugal/Slovenia) and the larger secondaries of Spain and Italy. Hey SuperMario Draghi: "Wanna send that data out early instead of the two month delay so we can vet your comment that deposits aren't a raging river flowing out of the periphery?  No, eh? I'm supposed to take your non-biased word, eh?"

Monday and Wednesday both were large distribution days. The volume pattern in the Spoo future this week is bearish. Monday and Wednesday's selloffs came on gigantic volume. Spoo support is key between 1529 and 1536 - the latter intertwines congestion support high and the 50 day SMA. Congestion support low begins March 18. There is no way to Estee Lauder that Hogzilla.

With earnings season coming up in a couple weeks, the most recent market breakout failing badly on large volume, the growth environment is poor. I'd rather consider applying long side risk to all time new high surging earnings gap breakouts that can begin large moves than current breakouts. Bet size for the former depends mostly on the broader market condition at the time. Since that is in the unpredictable and non-existent future, I'll choose to ignore it for the ongoing trading moment of Now.

Investment Jeopardy: I'll take All Cash for a $1000 Alex.  "What is the current investment of your portfolio Now?"

Sell in May and Go Away BS

Stick with the trend and the action of leadership...



PRAGMATIC CAPITALISMSell in May and Go Away? - PRAGMATIC CAPITALISM:

AAII Bullish Sentiment - Massive Disbelief at the V Bottom Rally

AAII is one sentiment measure I follow. So just as the market creates a clear trend change day up, AAII tanks in total disbelief.

Nice underpinning sentiment fuel.


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Trend Change Breakout Wednesday

This is a short post due to ongoing commitments that include caring for my wife after her stroke, studying for the CMT level 2 exam and trading.

Yesterday was a Trend Change Day breakout on the major averages - rising more that 1.3% on increasing volume along with large technical breakouts from technical congestion over the past month. Look for growth stocks to find a bid after leaderships 4% drubbing last week. So far the rally off those lows is a V.

Some names include LNKD, SBGI, PLAB, APO, PRIM, PCOM, WOR, and PIKE. A few are within 13 days of earnings. I avoid trading these. From my backtests, some run into earnings while others fall and the net is breakeven to profit. The rest chop and go nowhere until the release. I prefer to sit out the volatility and deploy risk capital on those positions that have surging thrusts upon their release. FYI.

Silver Shorts Leaning Extremely Heavily

Lots of shorts leaning one way in silver..................

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Fiduciary Duty to Cheat? Jim Chanos Comment

Jim Chanos on rampant US systemic fraud. Nice read, a highlight below

Fiduciary Duty to Cheat? Jim Chanos Reveals the Perverse New Mindset of Financial Fraudsters (by Lynn Parramore) « naked capitalism:

LP: What are the economic and social impacts of fraud that worry you the most?JC: The few things that jump out are obviously fraud at institutions that are backed by the taxpayer. Because there you’ve brought someone to the table that doesn’t know they’re at the table – in effect, the public or a small depositor. When the U.S. has to come to the rescue of these big institutions where clearly games were being played, we all lose. If I’m a hedge fund manager or investor, or if I’m a day trader, I understand the risks I’m taking. I’m a big boy, ok? And if I don’t do my work and someone pulls the wool over my eyes, well, shame on me.
But if my aunt in Okauchee Lake ends up having to foot the bill for Countrywide or Lehman Brothers or AIG, that’s not fair. And again, we get to a basic level of fairness. Is that eroded? Is trust in our market eroded because people think the game is rigged? Quite frankly, despite the recovery in the stock market, I think there is still an ongoing perception by the public that the game is rigged, and that my restaurant went out of business, and I didn’t get bailed out, but the guys on Wall Street did and they’re making bigger bonuses than ever. They got to start over with my money, but my restaurant didn’t. And that’s really a sense of fairness, I think, that continues to erode in this country. That’s number one.

Number two, I think that the costs for fraud tend to also disproportionately positively affect the wealthiest people in the country. So it also, in a weird way, increases the income inequality issue, and I think that’s something that’s beyond the purview of me in this interview, but it’s something I think that policy makers should keep in mind, because again, the people taking the biggest risks and taking the biggest paychecks and bonuses — if they had been hedge fund mangers, they would have been wiped out, and that’s that. End of game. But because they were doing it in too-big-to-fail institutions, they got to keep playing. In a weird way it is the antithesis of the free market. The free market would have taken these people out a long time ago. But, in fact, the subsidized market that we have, where the taxpayer stands behind all these bad decisions and the bad accounting, continues to exacerbate the income inequality issues.

LP: Right now, the news is filled of reports of fraud, from companies lying to regulators to money laundering and so on. Yet the GOP is trying to abolish Dodd-Frank, which addresses fraud by providing greater protection for whistleblowers, for example. Why would they be doing this?

JC: Well, I think the best comment was from a senior Democratic senator a number of years ago, who simply and bluntly said, “The banks own this place.” I always tell the story that right after the Bear Stearns collapse in March of ’08, the heads of all the big banks and brokers, they headed down to Washington immediately in April of ’08 to talk to senators and other lawmakers and regulators. As we now know, what they didn’t ask for was forgiveness for their misdeeds or perhaps forbearance on capital until they could get their house in order or to work with the regulators on what was obviously a massive credit crunch coming. No, what they asked for was two things. They asked for the accounting rules to be liberalized on their hard-to-value assets and for short-sellers to be cracked down on. That was their focus, and, by the way, both happened. There were short-selling bans shortly thereafter and the accounting profession, at the urging of Washington, changed, liberalized, the rules on hard-to-value assets in March of ’09. They got what they wanted, and this tells you something.

It really is amazing to the extent that lawmakers, despite all the evidence that major legislative initiatives that banks have asked for in the last 50 years have generally been harmful to the public purse, they’ve generally gotten what they’ve asked for. You can’t be too cynical.

LP: How does too-big-to-fail create fraud, and would breaking up the big banks be helpful in addressing it?

JC: Well, as we now know from Lanny Breuer and Eric Holder, too-big-to-fail is also too-big-to-jail. We now have admissions by the federal government that, in fact, this behavior was not extensively examined or investigated because of systemic issues.

It raises an interesting point, doesn't it? Because if now, as the senior member of a bank, or the board of a bank, I know that there are no criminal penalties for breaking the rules, don’t I have a fiduciary responsibility to my shareholders to actually play fast and loose? Because if I get caught, that’s just the cost of doing business? I know it’s a frightening thought, but if carried to its logical extreme—if truly people believe that because of their size, they can’t be prosecuted, it actually brings forth a new issue of moral hazard extreme: illegal behavior.

Extrapolate this point at the end. Playing extremely fast and loose with leverage and credit sets up yet another credit implosion eventually and another binary result. Without more QE alphabet soup credit programs to swap assets for Fed e-credit, the market collapses. Running another large round of Fed balance sheet expansion, without an exit strategy for 2008-2013 swaps, calls out the "temporary" nature of the increase in e-credit money supply. Odds rise that the markets correctly view this as permanent ongoing "patches" for systemic fraud and to avoid systemic meltdown. I wonder when the aha moment hits and commodity prices respond in kind.  If commodities really run, look for pressure on the CFTC to reduce leverage in the foods, energies, and softs. Reducing leverage creates selling. However, it makes for a firmer market the closer to cash it moves. Eventually, there is very little leverage and it becomes a really firm market. Then come price controls....and pitchforks.

Food for thought.

Banks Weak, Market Vulnerable

I spy with my eye a really weak financial sector:


XLF -0.96%
BK -1.21%
$BKX -1.40%
LPS -1.44%
GS -1.79%
C -2.05%
MS -2.12%
BAC -2.43%
JPM -2.53%

JPM is a huge boat anchor. It is making a new low for the move and accelerating away from its 50 day SMA which it is below. Sentiment is plenty complacent to support further correction. Growth stocks act bearish. Friday's rally and Monday's beginning of the month selling created candlestick tweezer tops/Oneil Rail Road Tracks/bar chart "ll" pattern of up one day sharp and a full reversal next day in MANY growth stocks. It seems like risk of an intermediate term correction is high.

Note the negative NYSE McClellan Oscillator:

Europe's weakest averages, Italy and Spain, continue to relatively underperform. Italy looks especially vulnerable technically. Given all the bank run talk and commentary on moving money out of Italy/Spain given the Cypress depositor fiasco, I am really interested to see how the EU Financial Conditions Index acts over the next few weeks as a dowsing rod for credit jitters.