The United States is
facing both a structural and demand problem - it is not the cyclical
recessionary business cycle or the fallout of a credit supply crisis
which the Washington spin would have you believe.
It is my opinion that
the Washington political machine is being forced to take this position,
because it simply does not know what to do about the real dilemma
associated with the implications of the massive structural debt and
deficits facing the US. This is a politically dangerous predicament
because the reality is we are on the cusp of an imminent and
significant
collapse in the standard of living for most Americans.
The politicos’ proven
tool of stimulus spending, which has been the silver bullet solution for
decades to everything that has even hinted of being a problem, is
clearly no longer working. Monetary and Fiscal policy are presently no
match for the collapse of the Shadow Banking System. A $2.1 Trillion YTD
drop in Shadow Banking Liabilities has become an insurmountable problem
for the Federal Reserve without a further and dramatic increase in
Quantitative Easing. The fallout from this action will be an intractable
problem which we will face for the next five to eight years, resulting
in the “Jaws of Death” for the American public.
READ MORE
The
economic news has turned decidedly negative globally and a sense of
‘quiet before the storm’ permeates the financial headlines. Arcane
subjects such as a Hindenburg Omen now make mainline news. The retail
investor continues to flee the equity markets and in concert with the
institutional players relentlessly pile into the perceived safety of
yield instruments, though they are outrageously expensive by any
proven measure. Like trying to buy a pump during a storm flood, people
are apparently willing to pay any price. As a sailor it feels
like the ominous period where the crew is fastening down the hatches
and preparing for the squall that is clearly on the horizon. Few crew
mates are talking as everyone is checking preparations for any
eventuality. Are you prepared?
What if this is not a squall but a tropical storm, or even a hurricane?
Unlike sailors the financial markets do not have the forecasting
technology to protect it from such a possibility. Good sailors before
today’s technology advancements avoided this possibility through the use
of almanacs, shrewd observation of the climate and common sense. It
appears to this old salt that all three are missing in today’s financial
community.
Looking through the misty haze though, I can see the following clearly
looming on the horizon.
Since President Nixon took the US off the Gold standard in 1971 the
increase in global fiat currency has been nothing short of breath taking.
It has grown unchecked and inevitably became unhinged from world
industrial production and the historical creators of real tangible wealth.
READ MORE
READER ROADMAP
- 2010 TIPPING POINTS aid to
positioning COMMENTARY
POSTS: MONDAY 09-27-10
Last Update:
09/28/2010 03:31 AM
SCHEDULE: 1st Pass: 5:30AM EST, 2nd Pass: 8:00 AM, 3rd Pass 10:30
AM. Last Pass 5:30 PM
Iran's nuclear agency is trying to combat a complex computer
worm that has affected industrial sites throughout the country and
is capable of taking over the control systems of power plants,
Iranian media reports have said.
Experts from the Atomic
Energy Organisation of Iran met this week to discuss how to remove
the malicious computer code, or worm, the semi-official Isna news
agency reported on Friday.
Isna said the malware had spread
throughout Iran, but did not name specific sites affected.
Foreign media reports have speculated the worm was aimed at
disrupting Iran's first nuclear power plant, which is to go online
in October in the southern port city of Bushehr.
Speaking
to Al Jazeera, Rik Ferguson, a senior security adviser at the
computer security company Trend Micro, described the worm as "very
sophisticated".
"It is designed both for information theft,
looking for design documents and sending that information back to
the controllers, and for disruptive purposes," he said.
"It
can issue new commands or change commands used in manufacturing.
"It's difficult to say with any certainty who is behind it.
There are multiple theories, and in all honesty, any of of them
could be correct."
The ruling coalition
has lost another supporter (via
Lorcan Roche Kelly), MP Mattie McGrath of Tipperary South, bringing the
coalition's majority to a razor thin 82-80. Once again,
as with when it lost a supporter on Friday, it comes down to spending
decisions. A collapse of the government seems imminent, which is exactly what the country
(and all of Europe) doesn't need right now.
One of the main problems facing the Fed in indirectly
monetizing US Treasurys (keep in mind the proper definition of
monetization is the Fed buying bonds directly from the Treasury,
as opposed to using Primary Dealer middlemen, which is how it
operates currently), is that there simply are not enough bonds in
circulation to be bid, under its current regime of operation!
Readers will recall that as part of existing SOMA guidelines, the
Fed is limited to holding at most 35% of any specific marketable
CUSIP. Furthermore, applying the SOMA limit to the $2 trillion in
upcoming next twelve month issuance, means that in the interplay
of the prepayment feedback loop coupled with collapsing rates, the
Fed will need to either change the cap on the SOMA 35% limit, or
the Treasury will need to issue far more debt to keep up with the
sudden expansion in the Fed's outright, and not just marginal,
capacity for incremental debt. Priya Misra summarizes this
conundrum facing the Fed best
We examine the Treasury market to analyze which part of the curve might benefit
the most from Fed buying if it embarks on QE2. The constraints will come
in term of the 35% SOMA limit as well as current outstandings and issuance
profile. Table 5 provides the breakdown of average SOMA holdings and
eligible dollar amount outstanding by sector. We estimate that in the nominal
coupon universe, there is currently $1.3trillion in outstanding eligible issues
for the Fed to buy. We compute eligible number of issues as the amount the Fed
can buy without breaching its SOMA limit of owning 35% of the issue size.
Considering that the Fed has not purchased 0-2 year securities in either QE1 or
the reinvestment program so far, the eligible universe reduces to $935billion.
Interestingly, $560bn of this is in the less than 7 year sector.
While
the total eligible securities may seem like a low number in the context of QE2,
we expect $2.1tn in gross issuance over the next year. Adding 35% of
this gross issuance to the total, the Fed will have $1.67tn in eligible nominal
outstanding to purchase without breaching the 35% limit. However,
depending on the total size of QE2, much of the buying might have to be
concentrated in the 2-7 year sector. To the extent that the Fed wants to
keep long end rates low, it might have to increase the 35% SOMA limit, or the
Treasury could change issuance.
We believe that the resolution to the limited supply question
will be found promptly, as the last thing the US government and
Treasury need is to be told that they need to issue more debt. We
are confident they will obligly handily. From a purely structural
perspective, suddenly the entire UST curve, and not just the
"belly", will be offerless, as the Fed will now have a mandate
of buying up virtually every single bond availablein the open market, and then some! What this
means is that rates will promptly plunge, and while many have
noted the possibility that the 10 Year drops below 1% upon the
formal announcement of QE2, we believe there is a very high
probability that even the long-end can see rates drop
substantially below 1%, while the 10 Year approaches 0%. Keep in
mind that this move will not be predicated upon
inflation expectations whatsoever (and in fact we believe this is
merely the first step to an outright monetary collapse also known
in some textbooks as hyperinflation), but merely as a means of
frontrunning Ben Bernanke, as the entire bond market goes
offerless, knowing full well that the Fed will buy any bond
below its theoretical minimum price of 0% implied yield (we leave
it to our readers to determine what this means price-wise on the
curve). It also means that the Fed will finally cross the boundary
into outright monetization, as Bernanke will be forced to directly
bid for any new paper emitted by the US Treasury, to maintain the
tempo of its purchases.
Asset Implications
As we have noted above, the immediate implication of the
vicious (or virtuous if you are Ben Bernanke) feedback loop of
collapsing rates, prepayments, and accelerating UST purchases, is
that mid-and long-term rates will likely promptly approach zero,
as every UST holder realizes they are now the marginal price
setter in a market in which there is a bid for any price. The Fed
will merely render the traditional supply/demand curve
meaningless, and any bonds offered for sale at any price will be
bid up by Brian Sack. The implication on stock prices is
comparably obvious: to readers who have been confounded by the
impact on stocks when there is $10 billion worth of POMOs in a
week, we leave to their imagination what the impact on 4x beta
stocks will be once the Fed floods the market with $90
billion worth of weekly liquidity, which is what we
calculate to be the peak repurchase activity between the months of
January and March, as QE2 ramps up to its full potential. In this
vein, analysts such as Deutsche's Joe LaVorgna who this Friday
came out with a note advising clients not to "Fight the Fed" (link)
may take the message to heart. After all, if this last attempt by
the Fed to spur asset price inflation, in which Bernanke is
effectively telling the consumer that a house can be had for no
money down, and for no interest ever, thereby eliminating the risk
of price deprecitation, fails, it is game over.
The largest number of bank failures in nearly 20 years has
eliminated jobs, accelerated a drought in lending and left the
industry's survivors with more power to squeeze customers. -
Some 279 banks have collapsed since Sept. 25, 2008, - In the
second quarter of this year, the Federal Deposit Insurance Corp.
increased its number of problem banks by 6% to 829 - The number
of U.S. banks could fall to 5,000 over the next decade from the
current 7,932 - Bank assets more than doubling to $13.8
trillion in the decade that ended in 2008. - "When we step back
and look at this financial disaster 10 years from now, the
destruction of capital in our economy as a result of what we've
endured will be the single greatest lasting impact on recovery and
how the economy performs in the future," - cut bank-industry
employment by 188,000 jobs, or 8.5%, since 2007 - FDIC is
burdened with $38 billion of remnants it is trying to sell -
94% of bank failures since 2008 had either residential or
commercial real-estate as their largest category of delinquent
loans. - Surviving banks have raised more than $500 billion in
new capital - Bank of America, J.P. Morgan Chase & Co. and
Wells Fargo hold 33% of all U.S. deposits, up from 21% in 2006
- "Absolutely unfair—the big boys have the clout," says Mr.
Squires. "Community banks are in jeopardy all over the country."
Regulators announced Friday a rescue and revamping of the
nation's wholesale credit union system, underpinned by a federal
guarantee valued at $30 billion or more. Wholesale credit unions
don't deal with the general public but provide essential
back-office services to thousands of other credit unions across
the U.S. The majority of retail credit unions are sound, but they
will have to shoulder the losses through special assessments over
the next decade. Friday's moves include the seizure of three
wholesale credit unions, plus an unusual plan by government
officials to manage $50 billion of troubled assets inherited from
failed institutions. To help fund the rescue, the National Credit
Union Administration plans to issue $30 billion to $35 billion in
government-guaranteed bonds, backed by the shaky mortgage-related
assets.
Most importantly, the rebound in growth tends to be more
subdued than normal (Chart 6) and it can take many years before
unemployment rates fall (Chart 7). In essence, the pressure from
the private- sector adjustment and deleveraging tends to make it
difficult to deliver the kind of strong growth that is needed to
eat into spare capacity. Updating our work here and plotting the
US experience so far—together with our latest forecasts—shows that
the US recovery, although slower than most normal recoveries, is
not particularly unusual relative to the experience of the more
serious housing busts.
Even in terms of U.S. GDP growth, the path so far has been
pretty standard for a housing crisis:
Investors tend to have a short memory, and it's hard to keep
blaming the housing crisis for problems that seem to persist well
after wards. We try and find a new scapegoat since the old one
seems tired, but maybe we're forgetting that unemployment remains
very high and GDP growth prospects are sluggish simply because
that's how recoveries from major housing crises tend to play out.
It takes a very long time for unemployment to recover completely.
(Via Goldman Sachs, Global Economics Weekly, Jim O'Neill,
22 September 2021
Job Loss Looms as Part of Stimulus Act Expires
NY Times
Tens of thousands of people will lose their jobs within weeks
unless Congress extends one of the more effective job-creating
programs in the $787 billion stimulus act: a $1 billion New
Deal-style program that directly paid the salaries of unemployed
people so they could get jobs in government, at nonprofit
organizations and at many small businesses.
Probably the most important fact that economists and investors
are ignoring is that QE2 will be accompanied by the
prerogatives of QE Lite, namely the constant rebalancing the Fed's
balance sheet for ongoing and accelerating prepayments of the
MBS/Agency portfolio. This is a critical fact, because once it
becomes clear that the Fed is indeed commencing on another round
of monetization, rates will collapse even more beyond recent all
time records (and if we are correct, could plunge all the way to
zero). What is very important to note, is that as Bank of
America's Jeffrey Rosenberg highlights, a material drop in rates,
which is now practically inevitable, is certain to cause a surge
in mortgage prepayments of agency securities: "Our mortgage team
highlights a 100 basis point decline in rates would raise the
agency universe of mortgages refinanciability from currently about
half to over 90%." (full report
link
The fact that declining rates creates a feedback loop on
prepayments, which in turn results in more security purchases and
even lower rates, is most certainly not lost on the Fed, and is
the primary reason for the formulation of QE Lite as it currently
exists. Indeed, those who follow the Fed's balance sheet, are
aware that the MBS/Agency book has declined from a peak of $1.3
trillion on June 23, to $1.246 trillion most recently, a decline
of $53 billion, which has been accompanied by $25 billion in Bond
purchases, resulting in such direct FRBNY market involvements as
$10 billion weekly POMOs. These, in turn, are nothing less than a
daily pump of liquidity into the Primary Dealers (who exchange
bonds boughts at auction for outright cash) by the Fed's Open
Market Desk, which then liquidity is used to the PD community to
bid up risk assets.
The Congressional Budget Office is basically projecting $1-trillion dollar
annual Federal budget deficits for as far as the eye can see.This will require the country to pile another $1 trillion of debt on top of our
existing $13.5 trillion debt load each year, which will quickly drive our
national debt-to-GDP ratio over 100% (Greece-like).So, naturally, people are concerned about all that government spending.So where's it going, really?Well, when you dig into the CBO's 10-year estimates for the growth in
Federal spending over the period, you find that Federal government spending is
expected to increase by about $2 Trillion a year over the next 10 years.Where's that money going?It's basically going to three things:
1. Entitlement programs (Social Security, Medicare,
Medicaid) -- +~$1.2 Trillion, or
60% of the increase
2. Interest on our debt -- +~$750 billion, or
37.5% of the increase
3. Everything else -- $50 billion, or
2.5% of the increase
Here's a chart that
shows this, from
Paul Kasriel at Northern Trust:
Image:
Northern Trust
What everyone's fighting about right now, by the way, is that little green
bar--"everything else"--the 2.5%. Maybe it's time we turned our attention to the other 97.5%?
Paul Kasriel has more: As the chart shows, the
largest projected increase in spending by an order of magnitude
over these years is for mandatory or entitlement programs - Social
Security, Medicare and Medicaid. Demographics is the primary
factor driving up these entitlement expenditures. Millions of baby
boomers will become eligible for Social Security and Medicare
benefits during the period covered in these projections. The
second largest projected increase in federal expenditures is
interest on the debt. On a percentage basis, this is the fastest
growing category of federal outlays. Why is interest on the public
debt growing so rapidly over this period? Partly because of the
interest on all of the public debt piled up as a result of the
federal budget deficits being incurred in each of the past fiscal
years starting in 2002. That relatively small (green) bar in the
chart represents the projected increase in all other federal
outlays besides entitlement programs and interest on the public
debt. The upshot of all this is that if one is serious about
slowing the rate of increase in federal government outlays in the
"out years," reduce entitlements for baby boomers. Good luck with
all that.
New Theory on BP Well Blowout WSJ A new theory
about the origin of the blowout of a BP oil well emerged when an
outside investigator said the problem could potentially be traced
to cracks that formed in an underwater formation.
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
Whether or not the Fed will decide to engage in QE2 on
its
November 3 meeting, or as others have suggested
December 14, and maybe even as far out as January 25, the
actual event is now a certainty. And while many have
discussed this topic in big picture terms, most notably
David Tepper, who on Friday
stated that no matter what, stocks will benefit from
QE2, few if any have actually considered what the impact
of QE2 will be on the Fed's balance sheet, and how the
change in composition in Fed assets will impact all
marketable asset classes. We have conducted a rough
analysis on how QE2 will reshape the Fed's balance sheet.
We were stunned to realize that over the next 6
months the Fed may be the net buyer of nearly $3 trillion
in Treasurys, an action which will likely set off a chain
of events which could result in rates dropping all the way
to zero, stocks surging, and gold (and other precious
metals) going from current price levels to well in the 5
digit range.
A Question of Size
One of the main open questions on QE2, is how large the
Fed's next monetization episode will be. This year's most
prescient economist, Jan Hatzius, has predicted that the
minimum floor of Bernanke's next intervention will be
around $1 trillion, which of course means that he likely
expects a materially greater final outcome from a Fed that
is known for "forceful" action. Others, such as Bank of
America's Priya Misra, have loftier expectations: "We
expect the size of QE2 to be at least as much as QE1 in
terms of duration demand." As a reminder, QE1, when
completed, resulted in the repurchase of roughly $1.7
trillion in Treasury and MBS/Agency securities. It is thus
safe to assume that the Fed's QE2 will likely amount to
roughly $1.5 trillion in outright security purchases.
However, as we will demonstrate, this is far from the
whole story, and the actual marginal purchasing impact
will be substantially greater.
If we are correct in our assumption that on November 3,
the Fed will announce a $1.5 trillion new asset purchase
program, the implications of the previous observation will
be dramatic. We additionally believe, that unlike QE1, the
Fed will be far less specific as to the composition of
purchases this time around, specifically for the
aforementioned resion. As the Fed adds an additional $1.5
trillion in total assets, and as 10 Year rates, and thus
30 year cash mortgage rates, drop, the prepayment
frequency of the Fed's existing MBS/agency book will
surge, until it approaches and surpasses BofA's estimated
90% in a very short period of time. And courtesy of its QE
Lite mandate, the Fed will purchase not only $1.5 trillion
of US Treasurys as part of its new QE2 mandate, but will
actively be rolling those MBS and Agencies put to
it by the general public. As a result, it is our
belief that over the six months beginning on November 3,
the Fed will end up purchasing almost $3 trillion in US
Treasurys in total. This can be summarized
visually as follows:
As the chart shows, while the Fed's balance sheet grows
from its current level of $2.3 trillion to $3.8 trillion,
it is what happens to the Treasurys held outright by the
Fed that is most disturbing: from $800 billion, we expect
this number to surge to nearly $3.6 trillion in just over
half a year, a massive increase of almost $3 trillion. The
implications of this asset "transformation" on the Fed's
balance sheet, not to mention those of US retail and
foreign investors, and capital markets in general, will be
dramatic
How much of an impact would $2 trillion in QE give us?
Not much, according to former Fed governor Larry Meyer,
who, according to Morgan Stanley, "...maintains a
large-scale macro-econometric model of the US economy that
is widely used in the private sector and in public
policy-making circles. These types of models are good for
running 'what if?' simulations. Meyer estimates that a $2
trillion asset purchase program would: 1) lower Treasury
yields by 50bp; 2) increase GDP growth by 0.3pp in 2011
and 0.4pp in 2012; and 3) lower the unemployment rate by
0.3pp by the end of 2011 and 0.5pp by the end of 2012.
However, Meyer admits that these may be 'high-end
estimates'.
"Some probability of a resumption of asset purchases is
already priced in, and thus a full 50bp response in
Treasuries is unlikely. Moreover, a model such as Meyer's
is based on normal historical relationships and therefore
assumes that the typical transmission mechanisms are
working. For example, a drop in Treasury yields would
lower borrowing costs for consumers and businesses,
helping to stimulate consumption, business investment and
housing. But there is good reason to believe that the
transmission mechanism is at least partially broken at
present, and thus the pass-through benefit to the economy
associated with a small decline in Treasury yields
(relative to current levels) would likely be
infinitesimal." (Morgan Stanley)
Last week
we pointed out that Jefferies group, one of the last few
remaining non-BHC broker-dealers, has just experienced its single
most disastrous drop in trading volumes, as its principal trading
revenues plunged by 80% QoQ. This is merely confirmation of what
we have been warning ever since we started highlighting the series
of 20 consecutive outflows from domestic equity funds: banks will
soon be forced to lay off thousands of people as the primary
revenue driver for the bulk of Wall Street firms - stock volumes -
is now gone. BofA and RBS have already confirmed they are
letting people go. Next up: the electronic trading giants such as
ITG, Knight and Schwab. And it will only get worse. As the FT
reports, September trading volumes are already 8% below August's,
which in turn was the lowest in 3 years! Of
course, the Fed is fully confident that if the DJIA ends September
at 11,000, investor confidence in stocks will return. We have one
word for that - LOL.
Already, 77 S&P 500 companies have said third-quarter earnings
per share will fall short of analysts' estimates. The 2.3 ratio of
negative to positive "preannouncements" for the third quarter is
up sharply from 1.1 in the second quarter. That doesn't bode well
for earnings season, which unofficially kicks off with
Alcoa Inc.'s results on Oct. 7.
S&P 500 companies are
expected to post year-to-year earnings growth of 24% in the third
quarter. That compares with 39% growth in the second quarter,
which was helped by most companies' dismal prior-year results. For
2011, analysts are forecasting a 14% gain, which would bring S&P
earnings to $95.37 a share, a record.
It appears that just as retail investors refuse to allocate
capital to stocks regardless of how artificially high the market
goes, so shorts completely ignored the ramp in the market from ~
1050 On August 30 to around 1125 on September 15: short remained
dead even at 14.4 billion. So what happens? State Street/BoNY gets
the daily short report, passes it on the the repo desks, and tells
them to pull the borrow in the most shorted stocks, as apparently
the message to the shorts just isn't getting through. And
what better way to force a short ramp than to keep shorts
massively squeezed. But because the stubborn shorts don't buy
the ramp in stocks, they keep putting on new replacement
shorts, which has led the market to keep recycling the weakest
hands, endless retail outflows be damned. Which means that the
squeeze could easily continue for so long as the State Streets of
the world believe that the shorts will finally capitulate, and
make the rally self-sustaining. So far it is not working.
The Fed will do this action (QE II) regardless of what happens
on that other fateful event scheduled to take place on November 3.
If it does not, asset prices will collapse leading America
into a deflationary vortex of deleveraging, and Bernanke is fully
aware of this. The only reason the market has found some
validation to the September risk asset surge, is the
"certainty" of QE2. Were this to be taken away, stocks
would plunge, as would all other assets. And since the Fed is
uncontrollable, and unaccountable to anyone, it is now impossible
to prevent this line of action, whose outcome is what some may be
tempted to call, appropriately so, hyperinflation. The direct
outcome will be an explosion in all asset prices, although we
continue to believe that of all assets, gold will continue to
outperform both stocks and bonds, as recently demonstrated. Those
who are wishing to front-run the Fed in its latest and probably
last action, may be wise to establish a portfolio which has a
2:1:1 (or 3:1:1) distribution between gold, stocks and bonds, as
all are now very likely to surge. We would emphasize an
overweight position in gold, because if hyperinflation does take
hold, and the existing currency system is, to put it mildly, put
into question, gold will promptly revert to currency status, and
assets denominated in fiat, such as stocks and bonds, will become
meaningless.
We dread to look at a chart of the DXY in early 2011. The
dollar will plunge, pure and simple, as the Fed makes it clear
that it will not tolerate currency appreciation. Also,
don't forget that as a side effect of QE2, another component that
will surge in addition to Fed Treasury holdings, will be excess
reserves held by the banks. If we are correct in
estimating that the Fed's assets will explode to $3.8 trillion,
then bank excess reserves will skyrocket by a factor of 150% from
the current $1 trillion to well over $2.5 trillion. The immediate
casualty of this will be the US Dollar: one needs to look no
further than 2009 to see what happened to the DXY when excess
reserves increased by $1 trillion, in order to extrapolate what
happens when it becomes clear that Bernanke is prepared to put any
amount of liabilities on the Fed's balance sheet in its latest
reflation attempt. And if anyone had doubts about the Fed being
able to successfully absorb $1 trillion in excess reserves
accumulated through QE1, all those concerns will be put to rest
once the number hits $2.5 trillion, or more.
Which brings us to gold. Needless to say, once the full "all
in" realization of just what QE2 means for risk assets and capital
markets sets in, gold (and other physical commodities) will
promptly go from its current price of $1,300 to a number well in
the five-digit range. We leave it up to our readers to provide the
actual digits.
In summary, David Tepper may well be right that stocks
will benefit from QE2, as will Bonds and as will commodities. In
fact, every asset class will explode in a supernova of endless
liquidity. To be sure, all of this will be very short
lived. Very soon, all those assets denominated in fiat paper, will
promptly collapse in the great black hole of reserve
currency devaluation, as it becomes clear that the Fed will stop
at nothing to win the race of global currency debasemenet.
And of course, none of this is to be confused for an actual
improvement in the economy, as QE2 will result in a dramatic and
irreversible deterioration in the US, and thus global, economy,
which, once the initial euphoria from QE2 recedes, will promptly
progress to isolationism, protectionism, currency wars and
exponentially accelerating monetization of each and every asset
class, thereby rendering price discovery irrelevant, as central
banks around the world stampede into irrelevant capital market,
each buying up as much of everything as their printing presses
will allow them, until the ink runs dry.
"Wall Street
Sentiment is one of many sentiment indicators we chart. Wall
Street Sentiment Survey data are provided courtesy of Mark Young of Equity
Guardian Group. Data are complied from the results of a weekly survey
of a group of experienced traders and technically oriented market analysts with
a diverse set of analytical disciplines from Mark's message board at traders-Talk.com.
Polling is conducted after the market close on Friday, and the results are
normally published late Saturday. You can find more information on Mark Young's
sentiment work at WallStreetSentiment.com.
What makes this sentiment survey unique is that the poll is
taken after the close on Friday, and those polled are asked only
to predict where the market will close as of the end of the
following week -- up, down, or neutral (no opinion). In other
words, everyone is on the same page, and only short-term
projections are solicited.
Something I noticed when posting last weeks poll results was
that bearish readings of greater than 65% often preceded price
tops by a week or two. Reliability seems to be enhanced if a high
percentage of bears occurs during an advance. I think this is
unusual because, when sentiment indicators show strong bearish
readings, a price advance usually follows."
The most recent reading of 75% bears has occurred during a modest advance, so it
is probably a good idea to curb bullish enthusiasm. Below is a longer-term chart to give you a better idea of the range of these
sentiment readings.
Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.ont>
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Gordon T Long
is not a registered advisor and does not give investment advice. His comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, we recommend that you consult with a qualified
investment advisor, one licensed by appropriate regulatory agencies in your
legal jurisdiction, before making any investment decisions, and barring that,
we encourage you confirm the facts on your own before making important
investment commitments.
