The Stock Market

     

 

 

John Hussman on Recent Developments

We always look forward to John Hussman’s weekly missive on the markets. Some people say that he is a “permabear”, but we don’t think that is a fair characterization. He is rightly wary of the stock market’s historically extremely high valuation and the loose monetary policy driving the surge in asset prices.

 

1-spx-vs-nyse-ad-lineThe S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but strengthened noticeably thereafter. The a/d line is just one of many examples. A major reason for this was that market participants reassessed the likely future path of the Fed’s monetary policy – click to enlarge.

 

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The Economy and the Stock Market

As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth.

 

factoryWhat’s left of the Brooklyn Domino Sugar Refinery.

Photo credit: Paul Raphaelson

 

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The Long Awaited Correction is Underway

The gathering of central planners at Jackson Hole was widely expected to bring some clarity regarding the Fed’s policy intentions. This is of course a ridiculous assumption, since these people have not the foggiest idea what they are doing or what they are going to do next. Like all central planners, they are forever groping in the dark.

 

U.S. Federal Reserve Chair Janet Yellen (L) congratulates Stanley Fischer as he is sworn in a vice chairman at the U.S. central bank in WashingtonHi there! Stanley Fischer finds chief central planner Janet Yellen deep in the bowels of the Eccles building. In Jackson Hole, they played “good cop, bad cop”.

Photo credit: Federal Reserve / Reuters

 

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No CPI Change

Several ill-defined economic data points were unveiled this week.  Namely, the Labor Department’s July consumer price index report.  According to the government data, on whole, consumer prices for the month didn’t change one iota.

 

1-CPI percent changeCPI change rate –  clearly, there’s not enough money printing just yet… – click to enlarge.

 

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When Will the Helicopter Take Off?

The quarterly meeting of the Incrementum Fund’s advisory board was held on July 19. A pdf transcript of the discussion can be downloaded via the link below. We were once again joined by special guest Brent Johnson, the CEO of Santiago Capital.

 

Helicopter_money_05.20.2016_largeThe new obsession of liquidity junkies around the globe: helicopter money! This should cement the “TINA” rationalizations for buying hopelessly overvalued stocks and bonds, right?

Cartoon by Bob Rich

 

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The War on Moles

OUZILLY, France – The farther you get from the big city, or the international press… the closer you get to reality. The myth and claptrap disappears as distance shortens. Imagination gives way to fact.

 

mole2There’s a war on, and he’s the target! It had to happen one day; after the many highly successful wars instigated by governmental world improvers, such as the war on terror, the war on drugs, the war on poverty and so forth, it was high time that someone started the war on moles. Rejoice, citizens! Your lawns and gardens will be made safe too!

Photo via a-z-animals.com

 

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Short Circuited Feedback Loops

Finding and filling gaps in the market is one avenue for entrepreneurial success.  Obviously, the first to tap into an unmet consumer demand can unlock massive profits.  But unless there’s some comparative advantage, competition will quickly commoditize the market and profit margins will decline to just above breakeven.

 

cost-per-gigabyte-large-1Example of a “commoditized” market – hard-drive storage costs per GB. This is actually the essence of economic progress; this price decline has benefited consumers immensely and vastly enriched their lives. This makes it all the more baffling that central bankers insist we absolutely need price inflation in order to have economic growth (in fact, it actually demonstrates what dangerous lunatics they are). – click to enlarge.

 

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A Rare Apparition

An old friend suddenly showed up out of the blue yesterday and I’m not talking about a contributor who had washed out and, after years of ‘working for the man’, decided to return for another whack at beating the market. Instead I am delighted to report that I am looking at a bona fide confirmed VIX sell signal which we haven’t seen for ages here.

 

old friendsHello, old friend. Professor X and Magneto staring each other down in the plastic prison.

 

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Confidence Gets a Boost

OUZILLY, France – Last week’s U.S. jobs report came in better than expected. Stocks rose to new records. As we laid out recently, a better jobs picture should lead the Fed to raise rates. This should cause canny investors to dump stocks.

 

stock-market-cartoons-3Canny investors at work (an old, but good one…)

Cartoon via Pension Pulse

 

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Right on the Money

OUZILLY, France – It is not often that you get investment advice from a presidential candidate. It is even rarer that you get good advice.

 

Donald Trump (L) speaks with Frank Zarb, former CEO of the Nasdaq Stock Market, before opening the Nasdaq Market September 20, 2005 in New York City.The Donald dispenses investment advice. “Better get out buddy, while the getting is still good”.

Photo credit: Michael Nagle / Getty Images

 

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Fractal Geometry of the Markets

You probably wouldn’t know it but I have actually been extremely busy over the past few months resurrecting a previous creation of mine. It all started about two years ago, in early summer of 2014, when I wound up diving head first into more advanced topics such as machine learning, artificial neural networks, support vector machines (SVMs), as well as fractal geometry of financial time series.

 

Fractal.2.0A fractal Zen moment.

Image via hdstockphoto.com

 

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Mad as a Hatter

Somewhere, someone first said “bull markets don’t die of old age.”  We suppose this throwaway phrase was first uttered in a time and place much like today.  That is, in the midst of a protracted bull market where stock prices had detached from the assets and earnings of companies their shares represent claim to.

 

Cow skeleton in the desert in Baroon village - aka the middle of nowhere, Rajasthan, IndiaThey may not die of old age… but they do occasionally die.

Photo credit: Brett Cole

 

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