Thursday, September 26, 2013

Here’s what happened to the S&P 500 last time the government shut down

Stocks marked their first five-day decline of 2013 on Wednesday, partly due to worries Congress won’t be able to avoid a shutdown, or even more problematic, manage to raise the debt ceiling in time to avoid a default by the U.S. government.
Still, the underlying mood seems to be one of relative calm: Sure, the government might shut down. Sure, the U.S. might even come to the brink of default. But in the end, cooler heads will prevail and a last-minute compromise will be reached.
Time will tell, of course. But Sam Stovall, chief equity strategist at S&P Capital IQ, notes that it was just a week ago Wednesday that the consensus proved quite wrong about the Fed’s tapering program. That raises the question of whether the crowd is making the wrong bet once again. He writes:
Could this majority, who we think expects Congress to arrive at an 11th hour agreement, be wrong again? With a mid-term election year right around the corner, it may behoove one party to allow the unthinkable to occur, so long as the other party got the blame. We believe the likelihood of another shutdown grows.
That’s depressing. But at the same time, Stovall argues that while Congress could force the S&P 500  to endure a 5%-plus drop, it could end up as a “gift” to investors.
He notes that the peak-to-trough decline associated  with the shutdown of the U.S. government between Dec. 16, 1995 and Jan. 6, 1996 saw the S&P 500 drop 3.7%, “only to witness a jump of 10.5% in the subsequent month.”
source:  thetell

Party Like its 1999

The stock market has gotten a few bumps and bruises on its ride higher this year, but one area that has had a pretty smooth ride the whole way is the Internet group.  It seems like recently every time you look at the ticker, stocks like Facebook (FB), Netflix (NFLX), Pandora (P) and Yahoo! (YHOO) are in the green, even when the overall market is in the red.
The Internet group has had a pretty amazing run during this bull market, and it has been accentuated by humongous gains in 2013.  Below is a chart showing the performance of the Nasdaq Internet stock index (QNET) since the start of the bull market on March 9th, 2009.  As shown, the Internet index is up 387% over this time period, compared to a gain of 207% for the Nasdaq 100 and +150% for the S&P 500.  So far in 2013, the Internet stock index is up 48%!  Its big jump over the last few months really stands out in the chart below.
Below is a table showing the best performing stocks in the 81-member Nasdaq Internet stock index so far in 2013.  As shown, NQ Mobile (NQ) is up the most with a gain of 286%, followed by Orbitz Worldwide (OWW) at 258% and Netflix (NFLX) at 232%.  YY Inc (YY) and Zillow (Z) round out the top five with YTD gains of more than 200% as well.  Other notable stocks on the list include Pandora (P) with a YTD gain of 177%, Groupon (GRPN) at 140%, Facebook (FB) at 86% and Yahoo! (YHOO) at 57%.  
How much longer can this run last?  

source:  Bespoke

Wednesday, September 25, 2013

The debt ceiling fight is here

The US Treasury Secretary wrote a little note to Congress today, informing lawmakers that on October 17, the country, which currently cannot issue debt, will only have $30 billion in cash on hand. That won’t be enough to cover daily obligations that can reach $60 billion. And that means default, technical or otherwise. Watch out for your portfolio, because the markets won’t like that.

If you want to know what happens should they fail to raise the limit, consult this terrifying flow chart:



Tuesday, September 24, 2013

Netflix is doing to TV what steam-powered printing did to books (video)

“The broadcast networks adapted to the expansion of cable networks very well,” Netflix CEO Reed Hastings said last week. “And that’s what we’ll see with cable networks: They’ll all become internet networks.”

He was speaking at a private conference hosted by Google in Arizona. Video of the Q&A session, which also included producer Brian Grazer, just went up online and was spotted by BTIG analyst Rich Greenfield (registration required).

The comment about cable networks becoming internet networks is interesting, in part, because Netflix recently began describing itself as a “network” for the first time. “We are a movie and TV series network,” it now says in the company’s “long-term view” document. The company’s preferred self-description used to be “internet TV app,” but Hastings clearly sees “network” as an equalizing term.

Hastings also used the interview to defend Netflix’s strategy of releasing full seasons of its original programming all at once, rather than one episode per week like traditional TV networks. Some think it hurts Netflix viewing and the amount of online chatter about the shows when people watch many episodes at once. But Hastings said his customers don’t really do that.  ”Occasionally they binge, and that makes a great story, but most of the time it’s just a single episode like you read the chapter of a book,” he said, drawing an extended analogy with the history of book publishing.

Novels, he observed, were once published as serialized fiction in magazines. “And then book manufacturing got cheap enough where you could make a book and sell it at a reasonable cost,” Hastings said, referring to steam-powered printing presses that emerged in the 19th century. “And then people got control of all 13 chapters; they could read on their own schedule, and that greatly outcompeted the serialized release model of the then-historic magazines.”

You can watch Hastings’ full interview above. Here’s the meatiest passage (starting around 4 minutes into the video):
Two hundred years ago, a lot of fiction was written for magazines. It was a serialized format for novels. And then book manufacturing got cheap enough where you could make a book and sell it at a reasonable cost. And then people got control of all 13 chapters; they could read on their own schedule, and that greatly outcompeted the serialized release model of the then-historic magazines.

And I think we’ll see the same thing, which is: More and more, consumers want control. They want freedom. Occasionally they binge, and that makes a great story, but most of the time it’s just a single episode like you read the chapter of a book.

And we’ll see chapters that are variable length. Like TV shows, instead of having 22 minutes for every episode, you can go with 30 minutes and 16, depending on the natural rhythms of the story.

So I’m sure that will take off, and the major networks— Look, the broadcast networks adapted to the expansion of cable networks very well. And that’s what we’ll see with cable networks: They’ll all become internet networks. They’ll do a lot of these release patterns. Because it’s what consumers want. They want control, and they want to be able to watch things— They can watch more that way because they can watch on their own schedule.

source: Quartz

Ray Dalio Explains How the Economy Works (video)

Ray Dalio manages the world's largest hedge fund, Bridgewater Associates.
It has a tremendous track record, so when the man talks about markets, people usually listen.
Beyond that, Dalio is known for having one of the most refined understandings of the economy in the financial industry.
Lots of investors pontificate, but Dalio's views are legitimately well-respected.
As part of his mission to explain how the economy works, Dalio has put together a neat, new 30-minute animated video called "How the Economic Machine Works," where Dalio narrates his big-picture view of the economy.
"I feel a deep sense of responsibility to share my simple but practical economic template," Dalio says. "Though it's unconventional, it's helped me to anticipate and sidestep the financial crisis, and it has worked well for me for over 30 years."
Dalio is worth almost $13 billion, so it's safe to say his economic template has served him well.

Click Here For Key Slides From The Video »

source:  businessinsider

Cartels and Collusion in the Potash Market


A dispute between two obscure mining companies in the former Soviet Union has ended, at least temporarily, a cartel that artificially propped up the price of potash, an important fertilizer needed by farmers around the world.
Much of the world’s potash, a form of potassium, is controlled by two export cartels, one made up of Canadian producers and one involving a company in Russia and a company in Belarus.
The potash cartels have imposed billions of dollars of extra costs on farmers and consumers, particularly in developing countries like China and India that have to import much of the fertilizer they use, according to a recent paper published by the American Antitrust Institute, a research group.
The governments of Canada, Russia and Belarus, which benefit from the cartels’ price fixing through higher tax collections and mining royalties, have contributed to the problem by either exempting the cartels from antitrust laws or encouraging them to control the global market for this important commodity.
In late July, however, the Russia company pulled out of its cartel, saying that it wanted to produce and sell more potash than the arrangement allowed. In retaliation, the Belarus government last month arrested the chief executive of the Russian company, Uralkali, on trumped-up charges of abuse of power and is holding him in custody. The collapse of that cartel is likely to lead to a 25 percent decline in the price of potash, which was selling for about $400 a ton earlier this year.
Some analysts predict that the cartel’s breakup will be only temporary because both companies stand to lose billions of dollars in profits by ending their partnership. Earlier this month, the chairman of Uralkali left the door open to working with the Belarusian producer again once the chief executive of his company is freed.
Reducing the grip of the potash cartels will take coordinated international action. Unfortunately, the World Trade Organization, which settles disputes involving many kinds of unfair trading practices, does not have the authority to look into anti-competitive partnerships. The potash case demonstrates why the W.T.O. needs the power to investigate and punish such behavior.
source:  nytimes
This is a fluid situation, but any Breaking Bad fan will tell you how hard it is to break up a cartel. As much as the NY Times feels the potash producers should sing Kum By Yah, there is a lot of money at stake and the players here are not exactly selling girl scout cookies.
These stocks are dead money unless the cartel can re-form.  If that happens, there are big gaps on the charts to fill:

Monday, September 23, 2013

S & P 500: False breakout?

The S&P 500′s slip below a key support level, at a time when the technical outlook is deteriorating,  sets the index up for a test of the market’s 10-month long uptrend, according to Bank of America Merrill Lynch technical research analyst Stephen Suttmeier:

"If stocks fail that test, it could lead to a further drop of 5.5% to the bottom of a long-term support range, which would represent a 9.6% decline from last week’s record high.
The 1700 level is the bottom of a previous resistance range at the July and August highs. Falling below that level is technically significant, Mr. Suttmeier said, as it calls into question the validity of last week’s run up to record highs.
The S&P 500 is down 0.6% at 1700 in recent trading, just off an intraday low of 1697. The index has lost 1.5% since closing at an all-time high of 1725.52 on Sept. 18."
On Sept. 10th, I wrote about the 1685.75 level, which has been tested today.

I wouldn't complicate things too much here.  We're still within a well defined trading range.

However, Suttmeier does bring up a good point, and it did feel like a blow off top on the Fed "no-taper" day.

Levels to watch and trade around:  1698 is the 9 dma and 1675 is the 50 dma.

Bull Market Corrections, 2009-2013

bull market corrections
Source: Investech
 Jim Stack:
“Historically, the average time between market corrections is 7.6 months. However, as shown in the graph [above], there were five corrections in just the first year of this bull market. After the initial 12 months, corrections slowed and followed a more typical pattern, occurring once or twice a year. Altogether, there have been 11 corrections of 5% or more, with two of those logging greater than 10% declines.
How does this compare to other extended bull markets? At 4.5 years, this bull market is already one of the longest since the Great Depression. Looking at the S&P 500 back to 1932, the average bull market duration is 3.8 years and, in comparison, this one is getting a little long in the tooth. Still, it does have a few peers… of the 16 bull markets over the past eight decades, only five prior to this one lasted more than 4.5 years.”
Source:  TBP

Morgan Stanley's Top Economist says sell stocks until your hands bleed

In the past week or so, we've seen several strategists on Wall Street put out really bullish calls on the stock market, especially in the wake of the Federal Reserve's surprise decision last Wednesday to refrain from tapering back quantitative easing.

Deutsche Bank chief U.S. equity strategist David Bianco says the S&P 500 now has a "straight shot to 1800" without a 5% correction.
BMO chief investment strategist Brian Belski ratcheted up his year-end S&P 500 price target to 1800 from 1650, saying stocks could ride all the way to 1900 on continued easy money from the Fed.
ConvergEx Group chief market strategist Nick Colas argues that "the classic setup for a Q4 melt-up rally" is in place.
And Barry Knapp, one of the most bearish equity strategists on Wall Street in 2013, finally cranked up his year-end S&P 500 price target to 1800 from 1600, also on account of recent Fed developments.
Against this backdrop comes an interesting anecdote from Morgan Stanley's top economist Joachim Fels, who says that "if you happen to be a contrarian, you should probably sell stocks till your hands bleed, and then sell some more."
In his "Sunday Start" note to clients, Fels writes:
If you happen to be a contrarian, you should probably sell stocks till your hands bleed, and then sell some more. Why? All the five seasoned investors representing large pools of money on the panel I moderated at our 4th annual Global Economics & Strategy Day in Frankfurt on Friday were constructive on equities, and almost all of the around 200 investment professionals in the audience seemed to agree.
The consensus on the panel was that the global economy continues to recover, interest rates will rise moderately, valuations are ok, earnings will accelerate, and European equities look more attractive than other regions. The only major divergence in view was over Japan, where the bulls argued “don’t fight the BoJ”, while the bears lamented the lack of structural reforms. Still, despite the broad overall agreement, it was a lively panel discussion that even touched on diverse topics such as cows, communists, and correlations – but that’s a story for another day and I only mention it because one of my favourite colleagues asked me to.
While I have a strong contrarian streak, I confess I side with the consensus at the moment, along with our own strategists who are constructive on developed-market equities. The global macro backdrop remains supportive and is pretty much following the DM ‘Acceleration’, EM ‘Stabilisation’, and central bank ‘Accommodation’ script we laid out in our Back-to-School Global Macro Outlook three weeks ago. In fact, monetary policy now remains even more accommodative than we expected as the Federal Reserve’s FOMC surprised us and almost everybody else on Wednesday by not tapering its bond purchases.

That sounds like a pretty good snapshot of the mood on Wall Street at the moment.

source:  businessinsider

Friday, September 20, 2013

World GDP and it's reliance on China


       The pace of global growth increased during the second quarter of 2013—only the third quarterly acceleration in three years. Buoyed by increased output in the rich world, global output was 2.4% higher compared with the second quarter of 2012.

But the world is dangerously dependent on China, which continues to grow at a clip.
Since the beginning of 2010 it alone has contributed over one-third of global GDP growth, with another 40% coming from the rest of the emerging world. Weighed down by debt since the financial crisis, the rich world’s growth has been sclerotic. Excluding America, it has provided just 10% of global growth since 2010; America has contributed another 12.5%.
Source:  The Economist
Remember the 60 minutes profile of China's ghost cities?

Australian reporter who "discovered" China's ghost cities two years ago returns to the scene:  

Click the link to see an update:  BusinessInsider

Thursday, September 19, 2013

JP Morgan Fines Now More Than $8 Billion Dollars

Since 2011, JPM has been fined $8B:
$56 million (April 2011)
$153.6 million (June 2011)
$229 Million (July 2011)
$88.3 Million (August 2011)
$5.29 Billion (February 2012)
$110 million (February 2012)
$150 million (March 2012)
$296.9 million (November 2012)
X% of $8.5 billion (January 2013)
$100 million (March 2013)
$410 million FERC settlement (August 2013)
$900 million (September 19, 2013)
Huh? 8 freaking billion?
Listen, I'm all about free enterprise and capitalism and the American way. And I hear and understand the argument for government over-regulation, but what is this company doing?
JP Morgan is not a bank.  It's more like an organization living on the edge between a business entity and a criminal empire.  

Thoughts?  Is this a shakedown? JPM specific?  Is Goldman Sachs smarter, less unscrupulous, or just better connected?
Source:  thedailybeastTBP

Wednesday, September 18, 2013

I went to cash because (please check one):

There have been plenty of good (and not so good) reasons to sell stock and raise cash over the last few months.  Raging bull markets can make us feel stupid sometimes.  But then again, if lowering your equity exposure helps you sleep at night, it’s worth it.  You can always get back in when your view becomes clearer.
Great list by a good guy, Josh Brown:
I went to cash because (please check one):
1. Sequestration
2. The Taper
3. Obamacare
4. Debt Ceiling
5. Egypt Revolution
6. Portuguese Bond Auctions
7. US Elections
8. Syria Threat
9. Sharknado
10. Chinese GDP
11. London Whale
12. High Frequency Trading
13. Nasdaq Freeze
14. Grexit
15. Marc Faber web video appearance on
16. Larry Summers
17. Low Volume
18. CAPE Valuation
19. Hindenburg Omen
20. Death Cross 

21. Other (please explain): _____________

Taper expectations from Wall Street's top economists:

·         Jan Hatzius, Goldman Sachs: $10 billion all in Treasuries
·         Vincent Reinhart, Morgan Stanley: $10 billion all in Treasuries
·         Aneta Markowska, Societe Generale: $10 billion all in Treasuries
·         Drew Matus, UBS: $7 billion in Treasuries, $3 billion in MBS
·         Joseph LaVorgna, Deutsche Bank: $10 billion in Treasuries, $5 billion in MBS
·         Michael Feroli, JP Morgan: $10 billion in Treasuries, $5 billion in MBS
·         Neal Soss, Credit Suisse: $10 billion in Treasuries, $10 billion in MBS
·         Michael Hanson, BAML: $10-$15 billion total, split evenly between Treasuries and MBS

·         Michael Gapen, Barclays: $15 billion total, split between Treasuries and MBS

It's interesting to keep score, and the market will react on reality vs. expectations.

Source:  Businessinsider

Tuesday, September 17, 2013

GOOG: Lower high. Head and shoulders set-up.

With the market making new highs, the relative weakness of Google is a bad sign.

100 dma = 880.75 = support.

Under $880, the 200 dma @ $823 is the target.

Friday, September 13, 2013

Twitter is already trading in the grey market

I remember getting a call from a broker to buy Facebook 3 months before the IPO.  Insiders had some shares to sell and were marketing them. Fair enough. This happens all the time with private companies and their employees.  I thought a lot about buying stock, as there was a ton of hype regarding Facebook at the time.  But in the end, I decided not to participate.  

FB's IPO was eventually priced @ $38.  On the first day of trading, it opened @ $42.05, rallied to $45, tested $38 and closed @ $38.23.   The next trading day it broke price and melted to $26 over the next month.  It actually touched $17.55 a share 4 months later.  I did the math and I would have lost money even if I flipped my shares @ $38 on the first day of public trading.

IPO's involve a seller and a buyer.  Yeah, no kidding.  But my point is that investment banks have a choice on the valuation they put on a new security.  Which side of the transaction will get the better deal?  The seller is their investment banking client.  The buyers are their retail and institutional customers. 

Twitter will go through the same process as Facebook.  

According to Business Insider, Twitter's privately held shares are currently trading in the grey market as high as $30 and as low as $16.  

Michael Pachter, an analyst at WedBush Securities, said Twitter is now valued at $15 billion to $16 billion based on buying in the private market.

“Over the last couple of months, shares in the secondary market have risen to between $20 and $30. That’s what the private market values it right now, not that investors have any information, but that’s what they are willing to pay.”

Goldman Sachs is leading the underwriting,  JPMorgan Chase and Morgan Stanley will also likely have a role.

Business Insider noted yesterday that a $20 billion valuation of the shares would put Twitter at about 17 times revenues — which seems steep but puts it right where Facebook and LinkedIn are trading.

So if you get a solicitation to buy Twitter anytime soon, realize that markets have become incredibly efficient and your best choice may be to wait until the secondary market does the pricing for you.  

Maybe by then, the hype will subside and natural market forces will get you a better entry price.  

For example, FB, currently @ $45, has more than doubled off the $17.50 lows it hit 4 months after the date of it's IPO.

Thursday, September 12, 2013

ICYMI: Putin's Op-ed in the NY Times

I learned from bartending to not talk to strangers about 3 things:  Politics, religion, and day-trading.

But sometimes, like the current situation in Syria, one of these soft taboos becomes an influence on our equity market.  Then its not just a matter of being polite, but a matter of fiduciary responsibility to report on it.

So here's the Putin op-ed from the NY Times yesterday:

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MOSCOW — RECENT events surrounding Syria have prompted me to speak directly to the American people and their political leaders. It is important to do so at a time of insufficient communication between our societies.
Oliver Munday
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For Op-Ed, follow@nytopinion and to hear from the editorial page editor, Andrew Rosenthal, follow @andyrNYT.

Readers’ Comments

Relations between us have passed through different stages. We stood against each other during the cold war. But we were also allies once, and defeated the Nazis together. The universal international organization — the United Nations — was then established to prevent such devastation from ever happening again.
The United Nations’ founders understood that decisions affecting war and peace should happen only by consensus, and with America’s consent the veto by Security Council permanent members was enshrined in the United Nations Charter. The profound wisdom of this has underpinned the stability of international relations for decades.
No one wants the United Nations to suffer the fate of the League of Nations, which collapsed because it lacked real leverage. This is possible if influential countries bypass the United Nations and take military action without Security Council authorization.
The potential strike by the United States against Syria, despite strong opposition from many countries and major political and religious leaders, including the pope, will result in more innocent victims and escalation, potentially spreading the conflict far beyond Syria’s borders. A strike would increase violence and unleash a new wave of terrorism. It could undermine multilateral efforts to resolve the Iranian nuclear problem and the Israeli-Palestinian conflict and further destabilize the Middle East and North Africa. It could throw the entire system of international law and order out of balance.
Syria is not witnessing a battle for democracy, but an armed conflict between government and opposition in a multireligious country. There are few champions of democracy inSyria. But there are more than enough Qaeda fighters and extremists of all stripes battling the government. The United States State Department has designated Al Nusra Front and the Islamic State of Iraq and the Levant, fighting with the opposition, as terrorist organizations. This internal conflict, fueled by foreign weapons supplied to the opposition, is one of the bloodiest in the world.
Mercenaries from Arab countries fighting there, and hundreds of militants from Western countries and even Russia, are an issue of our deep concern. Might they not return to our countries with experience acquired in Syria? After all, after fighting in Libya, extremists moved on to Mali. This threatens us all.
From the outset, Russia has advocated peaceful dialogue enabling Syrians to develop a compromise plan for their own future. We are not protecting the Syrian government, but international law. We need to use the United Nations Security Council and believe that preserving law and order in today’s complex and turbulent world is one of the few ways to keep international relations from sliding into chaos. The law is still the law, and we must follow it whether we like it or not. Under current international law, force is permitted only in self-defense or by the decision of the Security Council. Anything else is unacceptable under the United Nations Charter and would constitute an act of aggression.
No one doubts that poison gas was used in Syria. But there is every reason to believe it was used not by the Syrian Army, but by opposition forces, to provoke intervention by their powerful foreign patrons, who would be siding with the fundamentalists. Reports that militants are preparing another attack — this time against Israel — cannot be ignored.
It is alarming that military intervention in internal conflicts in foreign countries has become commonplace for the United States. Is it in America’s long-term interest? I doubt it. Millions around the world increasingly see America not as a model of democracy but as relying solely on brute force, cobbling coalitions together under the slogan “you’re either with us or against us.”
But force has proved ineffective and pointless. Afghanistan is reeling, and no one can say what will happen after international forces withdraw. Libya is divided into tribes and clans. In Iraq the civil war continues, with dozens killed each day. In the United States, many draw an analogy between Iraq and Syria, and ask why their government would want to repeat recent mistakes.
No matter how targeted the strikes or how sophisticated the weapons, civilian casualties are inevitable, including the elderly and children, whom the strikes are meant to protect.
The world reacts by asking: if you cannot count on international law, then you must find other ways to ensure your security. Thus a growing number of countries seek to acquire weapons of mass destruction. This is logical: if you have the bomb, no one will touch you. We are left with talk of the need to strengthen nonproliferation, when in reality this is being eroded.
We must stop using the language of force and return to the path of civilized diplomatic and political settlement.
A new opportunity to avoid military action has emerged in the past few days. The United States, Russia and all members of the international community must take advantage of the Syrian government’s willingness to place its chemical arsenal under international control for subsequent destruction. Judging by the statements of President Obama, the United States sees this as an alternative to military action.
I welcome the president’s interest in continuing the dialogue with Russia on Syria. We must work together to keep this hope alive, as we agreed to at the Group of 8 meeting in Lough Erne in Northern Ireland in June, and steer the discussion back toward negotiations.
If we can avoid force against Syria, this will improve the atmosphere in international affairs and strengthen mutual trust. It will be our shared success and open the door to cooperation on other critical issues.
My working and personal relationship with President Obama is marked by growing trust. I appreciate this. I carefully studied his address to the nation on Tuesday. And I would rather disagree with a case he made on American exceptionalism, stating that the United States’ policy is “what makes America different. It’s what makes us exceptional.” It is extremely dangerous to encourage people to see themselves as exceptional, whatever the motivation. There are big countries and small countries, rich and poor, those with long democratic traditions and those still finding their way to democracy. Their policies differ, too. We are all different, but when we ask for the Lord’s blessings, we must not forget that God created us equal.

Vladimir V. Putin is the president of Russia.