TODAY'S TIPPING POINTS 
| THIS WEEKS TIPPING POINTS | MACRO NEWS | MARKET ANALYTICS | 2013 THEMES |
"BEST OF THE WEEK " |
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TIPPING POINT or 2013 THESIS THEME |
HOTTEST TIPPING POINTS |
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MOST CRITICAL TIPPING POINT ARTICLES TODAY |
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FUNDAMENTALS - Turning Down
The New Normal In Nine Charts 02-03-13 Zero Hedge
Revenue Growth looks dismally recession-prone...

as does the stagnant earnings growth...

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02-05-13 |
FUND-MENTALS
EARNINGS |
ANALYTICS |
Q1 EARNINGS - PE Mutiple Expansion as Earnings Fall But Stocks Rise
Earnings Expectations Continue To Come Down 02-04-13 BI
"Since the end of the fourth quarter (December 31), analysts have reduced earnings growth expectations for Q1 2013 (to 0.5% from 2.4%) and Q2 2013 (to 5.4% from 6.7%)," wrote FactSet's John Butters on Friday. Stocks are getting more expensive. Technically speaking, multiples are expanding. This is something we've written about before expansion.
And for the bearish market watchers who have been pointing to falling earnings as a reason to get out of stocks, this ongoing multiples expansion is a true test of patience.
Here's a chart from FactSet showing stocks (green) trending up, while earnings (blue) trend down:
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02-05-13 |
FUND-AMENTALS
EARNINGS
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ANALYTICS |
YARDENI FORECAST - Year-End S&P target of 1665
YARDENI: A Market Melt-Up Could Send The S&P 500 To 1,665 Within Months 02-04-13 BI
A melt-up could propel the S&P 500 to my yearend target of 1665 before the middle of the year. That might be too much of a good thing. Such exuberance for stocks would probably reflect and contribute to stronger-than-expected economic growth. The market could then have a nasty correction during the second half of the year if we learn that Fed officials are increasingly alarmed that they are doing it again, i.e., pumping air into another stock market bubble.
Stock investors were undoubtedly happy to see on Thursday of last week that the core personal consumption expenditures deflator rose only 1.3% y/y during December, the lowest since May 2011. It’s also well below the Fed’s 2.5% red line. In Friday’s employment report, wages of all workers rose 2.1% y/y during January. That’s still very subdued, though up from last year’s low of 1.5% during October.
On the other hand, the expected inflation rate embedded in the spread between 10-year Treasuries and TIPS was at 2.6% on Friday, and seems set to move higher. If it does so, that could put the Fed in a real box. If expected inflation spikes up later this year, there could be more than one or two dissenters in the FOMC. Esther L. George, the President of the Kansas City FRB, was the lone dissenter with a vote at the January 29-30 meeting of the FOMC because she “was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”

Today's Morning Briefing: Goldilocks Is Back. (1) Not too cold, not too hot. (2) The downside of a melt-up. (3) Goldie’s shoes. (4) Too many charging bulls? (5) Room for more bullish sentiment and spreads. (6) P/E of 14 = 1600 on S&P 500 & 15 = 1700. (7) Payroll report was just right. (8) Next big debate at the Fed: Blowing bubbles again? (9) Inflation remains on ice, but expectations are heating up. (10) Barrage of bullish data sends bears packing. (11) Go With the Flow. (12) What’s leading and lagging the 2013 rally?
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02-05-13 |
PATTERNS |
ANALYTICS |
MARGINS - Clear Topping Pattern Forming
The New Normal In Nine Charts 02-03-13 Zero Hedge

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ANALYTICS |
FINAL PARABOLIC LIFT - 1550 to 1570 in the SPX before a Major Capitualation
Bob Janjuah Sees "Final Parabolic Spike Up" To 1575 Followed By Up To 50% Market Crash 02-05-13 Bob's World: Are We There Yet? via ZH
From Bob's World: Are We There Yet?
I last wrote in November (Risk not on?) and since then markets have broadly continued to track the medium-term bigger picture outlook set out in that note, as well as the shorter-term tactical "S&P500 1450/1475 rule? that I also discussed in that piece and in my earlier September note (Stop Loss Update). I wanted to publish now to provide some extra clarity:
1 – The medium-term and the ‘1450/1475 rule’: I wanted to recap the views set out in the above notes. Over the medium term – the first half or so of 2013 – I expected risk assets to rally with the S&P500 trading in the 1500s. Drivers were largely centred on more kicking of the can by policymakers. In terms of the "1450/1475 rule? for the S&P500, in place since September, the call has been and remains that on any weekly close above 1475, the outlook for risk assets is bullish and remains bullish until and unless we see a weekly close below 1450 for the S&P500, at which point the outlook flips to bearish. And the 1450/1475 zone for the S&P remains the neutral/zero position/no-go zone.
2 – Fundamentals vs. Policy – also known as "the gap between the real economy and financial markets high on the synthetic intoxicants coming out of central bank laboratories?: I have written before about the grotesque – in my view – and persistent misallocation of capital (in financial markets) being caused by the mispricing of capital/money by central banks; by their ongoing "promises? to misbehave – seemingly forever – such that anyone with good common sense will eventually be battered and beaten into submission and be forced into the misallocation game; and by the – again, in my view – irresponsible behaviour of fiscal policymakers too. Collectively, we have a huge global game of kicking the can down the road driven by excessive and wasteful government largesse, funded by explosive growth in central bank balance sheets. Future generations will and indeed already are beginning to pay (chronic youth unemployment in the Western world is the current channel) for what I see as deeply depressing policy settings and failed policymaker thinking, which persists with the idea that some form of debt-fuelled asset price elevation will lead to real wealth creation, which in turn will fix all our ills. The "movie? has been run before – too many times – and failed. Mispricing capital and forcing indebtedness into the system is an artificial booster of asset prices – in other words, such policy settings create asset price bubbles that always burst badly. NASDAQ 5000 was one recent example. And of course the huge bubbles that burst in 2007/2008 are another. Real wealth can only be created by innovation and hard work in the private sector, with policymakers, the financial sector and financial markets there to aid and encourage/incentivise. Real wealth is not created by the printing press and by excessive government spending. We simply cannot turn wine into water – after all, if it were that easy, why have we not done this before (with any lasting success, as opposed to abject failure, for which there is plenty of evidence)! Sure, central bankers through QE can create a chemical/synthetic concoction that may well get us even more intoxicated than real wine, but like most chemical processes that are focused on by-passing the rules and focused on immediate quick fixes, the "wine? they are synthetically creating will I fear ultimately lead to either a large market hangover (at best) or – at worst – to the "market equivalent? of serious liver poisoning or something even worse. The scale of the fallout will I feel be determined largely by how far markets and policymakers are willing and/or able to stretch the elastic band between real world reality and liquidity fed asset markets. Past experience shows us that this band can be stretched a long way, and we know that central bankers have a bad track record at both spotting and managing asset bubbles.
3 – Positioning and Sentiment: The most significant new developments have been in the realm of positioning and herding. Market sentiment had already been turned primarily by Draghi in the early summer of 2012, and the Fed's QEI leant heavily into this – as has the subsequent actions and/or words of other notable policymakers. But – and with the benefit of some hindsight – the missing link in calling the big top in the secular equity bull run out of the 2008/09 lows has been positioning. Market participants had – on a broad-based basis – simply been too cautious in terms of positioning structurally in risky assets. Without extreme positioning (long or short) markets tend to only see medium-sized corrections at best/worst, rather than big collapses. A key part of the positioning extreme is LEVERED positioning. Well, based on everything I have seen and heard from the flows and from talking to clients across geographies, across asset classes and across investor types, positioning is now getting structurally long risk. Folks are fearful of missing a raging bull market (no matter how poor the foundations of such a bull run maybe in their eyes), they are fearful that everyone else will enjoy a risk-on bonanza while they suffer from being too cautious, and they are looking to buy all and any dips. Herding is a natural animal phenomena and the markets are now beginning to herd in the "it?s all gonna be OK, get short bonds and get structurally long risk? camp. At peaks we see levered positioning in risk, and this is now clearly on the increase too. The number of times I have heard from clients that "with central banks in full QE mode, financial market risk asset prices can ONLY rally? can now almost be described as a cacophony. The key word here is "almost?. I don't think investors are yet "fully? positioned. We are "not there yet?. There is not yet sufficient leverage in risk-on positioning in my view. I think we need at least another round or two of "buying the dip? before we can consider positioning to be at extreme enough levels to set up the conditions necessary for a major sell-off (25% to 50%) as opposed to a minor correction (5% to 10%).
4 – Market Outlook: As can be inferred from the above, in the medium term (2 quarters +/- 1 quarter), and as per the route map in my previous notes, I think risk can rally further. I continue to believe that the S&P500 can trade up towards the 1575/1550 area, where we have, so far, a grand double top. I would not be surprised to see the S&P trade marginally through the 2007 all-time nominal high (the real high was of course seen over a decade ago – so much for equities as a long-term vehicle for wealth creation!). A weekly close at a new all-time high would I think lead to the final parabolic spike up which creates the kind of positioning extreme and leverage extreme needed to create the conditions for a 25% to 50% collapse in equities over the rest of 2013 and 2014, driven by real economy reality hitting home, and by policymaker failure/loss of faith in "their system?. I always like to remind clients that, in the run up to the 2000 and 2007 highs, before the significant collapses that followed in the subsequent 18/24 months, markets seemed infatuated in Greenspan and his famous "Put? the same way today?s teenagers seem infatuated with Justin Bieber, investor complacency was off the charts, volatility was at record lows, belief in "the system? was sky high, and positioning was at extremes. The flashing common sense warning signs were being ignored, if not mocked. Time – the next 18/24 months – will we think provide the answer as to whether we are witnessing a repeat disaster in the making. IF I AM WRONG AND WE TRULY HAVE FOUND ECONOMIC AND MARKET NIRVANA SIMPLY THROUGH THE CENTRAL BANK PRINTING PRESS AND ENORMOUS INDEBTEDNESS, THEN I WILL HAVE NO HESITATION IN ENJOYING THE FUTURE, THINKING ABOUT THE FUNNY MONEY MIRACLE, NEVER NEEDING TO WORRY ABOUT ECONOMIES OR GROWTH EVER AGAIN (all hints of sarcasm entirely intentional). Tactically, over the next quarter or two, I expect to see one or two (at least) 5% to 10% dips or corrections ((there are after all many banana skins ahead in terms of politics, policy, and economic fundamentals), but which I think will be short lived and heavily bought into largely by latecomers (retail?) to the party, encouraged by more central bank promises. One such correction is due now and should take the S&P500 down by 5% or so (from 1515 to 1440ish) over the first few weeks of February. Over the end of February and the first half of March (at least) we should see risk assets rally back into the 1500s (S&P500) – and most likely above 1515. Two asset classes that may lag any such a rebound rally are credit (IG and HY) and EM. Credit markets in particular are I think great early indicators of a secular change in the direction of (equity) markets and it may well be the case that we have already seen, or will over the very near future (the next quarter) see the grand cycle tights for credit spreads.
Enjoy the dips. And focus on being very tactical and liquid, whichever way you feel markets are going to trend. Now is not the time to be getting overly levered, overly "structured?, or overly illiquid with respect to portfolio positioning. And good luck for 2013 and beyond. |
02-05-13 |
RISK ON-OFF |
ANALYTICS |
DIVERGENCES - Continue to Expand
The New Normal In Nine Charts 02-03-13 Zero Hedge
Top-Down - US equity valuation appears notably divergent from New Orders...

and overall macro performance...

which both seem to indicate a 12.5x Fwd P/E is more appropriate than ~14x
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02-05-13 |
PATTERNS |
ANALYTICS |
MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Feb. 3rd - Feb. 9th, 2013 |
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RISK REVERSAL |
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JAPAN - DEBT DEFLATION |
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BOND BUBBLE |
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RISK- ON-OFF: Bonds Most Overbought in 55 Years
BOND GOD: The World Is Changing, And Bonds Are The Most Overbought I've Seen In My 55 Year Career 02-03-13 BI
For years, investors have watched in disbelief as the 30-year bull market in fixed-income assets has raged on, leaving bears in the dust.
The bond skeptics are having another moment, as talk grows of a "great rotation" from bonds into equities, as rates finally start to rise, and the economy turns back into the old normal.
Dan Fuss of Loomis Sayles is the third bond fund manager to be called a "bond god" (the other two are Bill Gross and Jeff Gundlach).
He is strongly of the view that the current fixed income market is out of control, and that a reckoning is coming.
From Bloomberg:
“This is the most overbought market I have ever seen in my life in the business,” Fuss, 79, who oversees $66 billion in fixed-income assets as vice chairman of Boston-based Loomis Sayles & Co., said in an interview in London. “What I tell my clients is, ‘It’s not the end of the world, but for heaven’s sakes don’t go out and borrow money to buy bonds right now.’”
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“The world is changing,” said Fuss, who started in the investment business when Dwight Eisenhower was U.S. President. “We are coming off a period of very low interest rates because the central banks have been buying the bonds. Interest rates are going to go up.”
The idea of the bond bull run coming to an end is a bit more popular, it seems, within the equity side of the world, where analysts are (to some extent) cheerleading the shift from fixed income into bonds. That being said, Bill Gross has clearly been skeptical of the bond market for awhile (having been burnt on a short in 2011).
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02-04-13 |
ANALYTICS
RISK-ON OFF |
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3- Bond Bubble |
EU BANKING CRISIS |
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4 |
SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] |
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CHINA BUBBLE |
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6 |
TO TOP |
MACRO News Items of Importance - This Week |
GLOBAL MACRO REPORTS & ANALYSIS |
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US ECONOMIC REPORTS & ANALYSIS |
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES |
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Market Analytics |
TECHNICALS & MARKET ANALYTICS |
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MONETARY EXAPNSION - Losing Effect on Market
The New Normal In Nine Charts 02-03-13 Zero Hedge
The pump-effect is having less and less impact (flatter and flatter slopes of nominal recovery)...

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02-04-13 |
PATTERNS |
ANALYTICS |
ANALYTICS - German 'Reality' Check Divergences
The Un-Manipulated Market That Keeps Merkel Awake At Night 02-03-13 Zero Hedge
It would appear that either Germans have stopped using electricity (now that is some severe austerity) or the 'real' economy in the core powerhouse of Europe's growth is struggling notably more than the nominal price of its stock market would imply. Applying the same 'myth-busting' data-series to Germany as we have in China, it is clear that expectations for greater electricity demand (and implicitly economic growth) are grossly different to the expectations priced into German stocks.
...or they just discovered cold fusion...

Charts: Bloomberg |
02-04-13 |
PATTERNS |
ANALYTICS |
PATTERNS - Money is ALL IN
Charts To Panic The "Money On The Sidelines" Hopers 02-02-13 Citi, Goldman, Barclays via ZH
If yesterday's indications of the near-record overweight net long positioning in Russell 2000 Futures & incredible net short VIX futures positioning, along with the extreme flows contrarian indication was not enough to concern investors that the 'money' is in, then the following four charts should cross the tipping point.
- Citi's Panic/Euphoria guage for US stocks has only been more euphoric on two occasions - Q4 2000 & 2008;
- Goldman's S&P 500 positioning has only been this extremely long-biased on two occasions - Q4 2008 & Q2 2011; and
- Barclays' credit-equity divergence has only been this over-bought stocks on two occasions - Q4 2008 & Q2 2012.
It doesn't take a PhD to comprehend the extent of excess priced into stocks currently - no matter what Maria B tries to tell us.
CITI
Citi's Panic/Euphoria Model indicates extreme 'euphoria' - which has led to significant equity market losses in the past...
GOLDMAN
Goldman's S&P 500 Positioning has only been this extreme long twice before - and both were followed by dramatic sell-offs....

BARCLAYS
and Barclays points out what we have discussed, that stocks (and implied vols) are dramatically over-priced relative to Investment grade credit...
and high-yield credit...

via Barclays,
At the index level, the drop in equity volatility over the course of the last month has resulted in credit spreads in the US appearing too wide relative to SPX weighted average implied volatility. While we have been highlighting this for the HY index over the last couple of months, the cheapness of credit relative to equity implied volatility is now a feature even in the case of the IG index.
Whether the smart money is all-in ready to unwind to the dumb money is unclear but one thing is clear - the US equity market is as levered long and over its skis as it has ever been - trade accordingly...
Source: Goldman Sachs, Citi, and Barclays |
02-04-13 |
PATTERNS |
ANALYTICS |
COMMODITY CORNER - HARD ASSETS |
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THESIS Themes |
2013 - STATISM |
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2012 - FINANCIAL REPRESSION |
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FINANCIAL REPRESSION - Sign Posts of the Roadway
The Government Generously Offers To Help You "Manage” Your Retirement Account 02-02-13 Michael Krieger of Liberty Blitzkrieg blog, via ZH
[ZH: We have discussed this threat over the past several years (must read).] The obvious concept is that when the government runs out of money, or they face a drying up in interest for its debt, they will come for the $19.4 trillion in American’s retirement accounts. It seems that day may be finally drawing near.
I stopped contributing to my 401k back when I worked at Bernstein, and I will probably now have to give more serious consideration whether I want to take the penalty and move the funds out of my retirement account entirely. I haven’t made any decisions, but will be watching closely.
I’m sure the government is just trying to protect your retirement account from terrorists.
From Bloomberg:
The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.
That’s one of the things we’ve been exploring and are interested in in terms of whether and what authority we have,” bureau director Richard Cordray said in an interview. He didn’t provide additional details.
The bureau’s core concern is that many Americans, notably those from the retiring Baby Boom generation, may fall prey to financial scams, according to three people briefed on the CFPB’s deliberations who asked not to be named because the matter is still under discussion.
The Securities and Exchange Commission and the Department of Labor are the main regulators of U.S. retirement savings vehicles and funds. However, the consumer bureau — established by the 2010 Dodd-Frank Act — sees itself as a potential catalyst for promoting a coherent policy across the government, the people said.
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02-04-13 |
THESIS 2012 |
FINANCIAL REPRESSION |
2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
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2010 - EXTEND & PRETEND |
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THEMES |
CORPORATOCRACY - CRONY CAPITALSIM |
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GLOBAL FINANCIAL IMBALANCE |
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SOCIAL UNREST |
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CENTRAL PLANNING |
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STANDARD OF LIVING |
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GENERAL INTEREST |
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