Investing in Macro Tipping Points

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RISK - Near Term Consolidative Correction

"We are growing concerned about the potential for a pause or near term correction in the S&P500," warns BofAML's MacNeil Curry, as the options market flashes a warning to US equity bulls.

S&P500 volatility warns of complacency

We are bullish stocks, with the S&P500 targeting 2080/2100 into year end. However, in the near term, equity volatility warns of complacency and the POTENTIAL for a correction. Specifically, the VXV/VIX ratio (VXV is the BBG ticker for 3m SP500 Volatility) has reached levels that have often led to a market pause/correction.

While such a pullback would ultimately be corrective, BE ALERT.

Source: BofAML

PATTERNS - Breadth

John Hussman provides a slightly different chart & perspective this week on his observation that the stock market is overvalued, overbought & overbullish .. this time he shows vertical bars representing components of deteriorating market internals .. "This gives a less binary view of these syndromes. The spikes (such as 1929, 1972, 1998, 2000, 2007, 2011, and the past year) show points when a preponderance of conditions –

• Extreme valuation,
• Lopsided bullish sentiment,
• Overbought conditions,
• Widening credit spreads, and
• At least some aspects of deteriorating market internals

.. have been observed in unison. The red line shows the S&P 500 Index (log scale) .. The lessons to be drawn from the recent market cycle are not that historically overvalued, overbought, overbullish extremes can be dismissed. Rather, the lessons to be drawn have to do with the criteria that distinguish when such extremes have little near-term impact from periods where they suddenly matter with a vengeance."

.. Hussman notes that measures of risk aversion like widening credit spreads are beginning to surface.

LINK HERE to the essay

PATTERNS - Signals in the CDX HY

New York City weather turned dismal yesterday and so did U.S. credit markets. The CDX emerging-market index spread widened by seven basis points, the CDX high-yield by five basis points and the CDX investment-grade by one basis point. A similar picture was seen in bonds, with U.S.-dollar-denominated emerging-market corporates six basis points wider, high-yield corporates five basis points wider and investment-grade corporates two basis points wider.

The S&P 500 Index on the other hand closed every day this and last week within a barely believable three-point range.

BOLLINGER BAND TRADING

One short-term, tactical thing to watch is a standard Bollinger Band trading strategy. Investing in the S&P 500 with a Bollinger Bands approach generated a 19.5 percent return over the last 12 months compared with 13.5 percent for the index, according to Bloomberg’s multi-strategy analysis tool.

Trades are initiated whenever the SPDR S&P 500 exchange-traded fund price exceeds two standard deviations over the average price of the previous 20 days. This method ranked the joint highest among 23 strategies.

CDX HY PATTERN TRADING

It's also worth watching the high-yield market. As the first chart shows, in the last 18 months the CDX HY index has warned, with a lead time of about a week, of the last five declines in the S&P 500 of 4 percent or more. It may be a concern that the CDX HY index has been declining since last Monday.

Finally, the 17-month moving average of the S&P 500 has been useful for the last 20 years in signaling the largest and most important long-term, strategic plays. As the second chart shows, whenever the 17-month moving average crosses the price line, it provides a trading signal that has proved surprisingly accurate. Still, a "perfect storm" doesn't appear to threaten markets yet.

PATTERNS - Russel Diverging, HY Never Bought In

Charts from ZH

This is The Russell 2000's worst streak since the Bullard lows and the start of the drop last month...

HY credit is not buying this exuberance...

"There is no FREEDOM without NOISE -

and no STABILITY without VOLATILITY."

Nazi Germany, Fascist Italy, the hive mind of Japan and now Tyrannical America all exist because the people of those countries wished it to be so.

All the nations above, and every other maniacal nation/empire that existed throughout history, were loudly applauded, cheered and actively supported not only in the early stages of its creation, but as they grew increasingly dangerous not only to their friends and neighbors, but to themselves. The descent into tyranny is always warmly welcomed by the populace.

Is the present day political and corporate corruption, the abject and transparent central bank controlled and imposed financial swindle, the massive cultural debasement of moral values and personal responsibility, is all this and more the cause of our problems or just the symptom of an even greater disease?

Can we honestly point fingers at they, them and those and completely ignore the ultimate source of the illness, the personal dysfunction and corruption that springs from within “We the People”?

No substantial changes will ever take place until “We the People” collectively, and more importantly, individually fully accept the fact that while ‘we’ as individuals are not responsible for this country’s, nor the world’s, problems ‘we’ as individuals are completely responsible for our ‘self’ and the problems that result from our individual beliefs, pursuits and decisions.

The buck does not stop at the President and the executive branch, with Congress or any other legislative body, at the Supreme Court and the ‘justice’ system, in academia or the corporate world. The buck stops here, right here, within me and you and they and them.

Since I have no control over anyone else other than myself, my first and most pressing responsibility is to enact change within my ‘self’ first if I ever wish to see it widely disseminated. Everything else flows from this inalienable truth, that “We the People” are ultimately and solely responsible for “We the People”.

Only after we as individuals have declared our own personal sovereignty, and then embody it on a daily basis, will we ever be able to unseat those who declare sovereignty over “We the People”. A sovereign individual does not blame others for issues he or she has the power to change. I must face my own hypocrisy first, a festering condition that feeds and nourishes the greater hypocrisy, before I can demand others to do the same and for the system to change.

As long as I deny responsibility for my personal contributions to the ongoing tyranny nothing is going to stop our descent into hell.

It all begins within. source

This Is What Neo-Feudalism Looks Like

This Is What Neo-Feudalism Looks Like  Mike Krieger via Liberty Blitzkrieg blog VIA ZH

I got this from Naked Capitalism. Before presenting the chart, here are some words to bear in mind from Yves Smith:

Short omits some key elements from his discussion. One is that until recently, a profit share of GDP of 6% was perceived to be a cyclical peak; no less than Warren Buffet deemed a higher level to be unsustainable. And in fact, we see an explosion of profit share from 6% to 10% of GDP in the runup to the crisis, roughly from 2003 to 2007. The “rescue the banks and financial markets” measures succeeded in bringing the profit share back to its pre-crisis levels, at the expense of workers.

Notice the inflection point in profit share is 1987, when Greenspan became Fed chairman. Correlation may not be causation, but the timing is almost exact.

The Maestro strikes again!

Don’t worry plebs, it’ll get better next year. Just keep calm and slave on.

SPEAKING OUT ON FINANCIAL REPRESSION

Tim Price is Director of Investment at PFP Wealth Management in the UK, an independent asset management and financial planning practice. He was formerly Chief Investment Officer – Global Strategies at Union Bancaire Privée in London, and previously Chief Investment Officer at private bank Ansbacher & Co.

Tim has 18 years’ experience of both institutional and private client wealth management. A graduate of Oxford University, his focus is absolute return investing using multiple asset classes, including so-called alternative investments. Working with his prior employers he has been shortlisted for five successive years in the Private Asset Managers Awards program and is a previous winner in the category of Defensive Investment Performance. He was also shortlisted in the inaugural Spear’s Wealth Management Awards 2007 in the category of Asset Manager of the Year. An outspoken and sometimes irreverent commentator on financial markets and the asset management industry, Tim is also a regular columnist for Money Week magazine and maintains a weblog, The Price of Everything (http://thepriceofeverything.typepad.com/) and edits Price Value International.

FINANCIAL REPRESSION

"Financial Repression is government stealing from savers and the future!"

"The single biggest problem of our times economically, is that for the last 40 years there has been an unsustainable buildup of credit expansion throughout the developed world ... and we have reached the end of the road new. Every policy by governments and their agents (the central banks) is too a) Kick the Can Down the Road and B) to steal from savers to keep this bandwagon rolling!"

THREE ALTERNATIVE APPROACHES TO ATTEMPT A RESOLUTION:

1. Generate Sufficient Economic Growth to Keep Servicing the Debt,
2. Repudiation or Debt Default,
3. An Explicit Policy of State Sanctioned Inflationism.

Approach #1 and #2 or no longer realistically viable, leaving governments with only option #3. The last options has historically always been the option governments of fiat based systems have resorted to throughout the ages because of a lack of "political will and discipline".

Tim believes Japan is presently the 'dress rehearsal' and the rest of the world will be the main event.

A "FOUR LEGGED" INVESTMENT APPROACH

The pragmatic response - Ignore indices and concentrate on value.

“Investors do not make mistakes, or bad mistakes, in buying good stocks at fair prices. They make their serious mistakes by buying poor stocks, particularly the ones that are pushed for various reasons. And sometimes – in fact very frequently – they make mistakes by buying good stocks in the upper reaches of bull markets.”

  -Benjamin Graham

1. High Quality Debt,
2. Deep Value Listed Equity,
3. Uncorrelated Assets and Systematic Trend Following (CTA),
4. Diversified Real Assets

Tim recalls the words we last heard in the dark days of 2008:

"When you’re a distressed seller of an illiquid asset in a market panic, it’s not even like being in a crowded theater that’s on fire. It’s like being in a crowded theater that’s on fire and the only way you can get out is by persuading somebody outside to swap places with you .”

This is precisely what occurs when the regulatory pressures and un-natural forces of FINANCIAL REPRESSION finally ends

PODCAST - 26 Minutes

"WE'RE GOING TO BE FINANCIALLY REPRESSED FOR DECADES!"

Bill Gross, the 69-year-old billionaire co-founder of Pacific Investment Management Co., told Bloomberg Radio - AUDIO

Click to Play

Feeble returns on the safest investments such as bank deposits and fixed-income securities represent a “financial repression” transferring money from savers to borrowers, says Bill Gross.

Workers 65 and older, struggling with years of depressed yields, are the only group of Americans who are increasingly employed or looking for jobs, according to Labor Department participation-rate data.

Federal Reserve interest-rate policy that aims to cut borrowing costs. “I hate to be gloomy, but, yes, for the next 10 years, the oldsters, and I’m in that camp, are going to be disappointed in terms of the policy rate.” About 75 million baby boomers, born from 1946 to 1964, are starting to retire and face meager returns as a byproduct of the Fed’s decision to hold its benchmark rate near zero since December 2008. Policy makers also have quadrupled the central bank’s balance sheet to a record $4.22 trillion to drive down borrowing costs.