Stocks & Equities

S&P 500 ready for 10% correction and bad 2013 says Marc Faber

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Posted by Marc Faber via CNBC

on Wednesday, 22 August 2012 07:29

Legendary investment adviser Dr Marc Faber thinks the S&P 500 is on the brink of a 10 per cent correction that would herald QE3 money printing from the Fed. He is always worth following and often accurate.

Dr Faber reckons the S&P is seeing its high for the year and that 2013 will be a very difficult year for stocks…


Stocks & Equities

Finally, A Hopeful Signal

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Posted by Richard Russell - Ross Clark

on Monday, 20 August 2012 12:29

What? You're not happy with the market? It could be worse. You could have loaded up on the Facebook IPO at 44, and today the dog is selling at 19.07. But I'm not sure I feel sorry for Zuckerberg. After all (sniff) he's no longer one of the five richest tech-lords. Now there is talk that he should be removed as CEO, because he's too immature.

Fred Hickey, my vote as the top expert in tech, thinks the tech bubble has popped, and that tech is now in a secular bear market. I agree with him, only because I can't really work my iPhone (I claim it's not really user-friendly), and because I think playing with Facebook is a royal pain.

Hickey, by the way, is a huge fan of gold and the gold mining stocks. But don't get me wrong about tech, I love Amazon and Google, and I love the Internet. I think the Net has changed the world. It allows almost everyone on earth to know what's going on in the rest of the world, and we know that "the truth will set you free." Every dictator loathes and fears the Internet, because the Net allows people to know what's going on. Why even North Korea is showing signs of crumbling, not only because of the Internet -- but because their newest boy dictator was educated in Switzerland.

Yesterday, the Dow almost made it to its May 1st peak, but at the close they sold the Dow off. The Transports still have a way to go before they can close above 5285.97. What will I do if both D-J Averages do close above their May peaks? In that case, the facts will have changed, and I'll change with them. There's nothing stupider in this business than an analyst who dreams up a scenario and who sticks with his scenario no matter what. I often have a scenario, and as long as the markets go in harmony with my scenario, I'll stick with it, but when the facts change I revise or jettison my scenario -- to do otherwise would be idiotic. 

I may appear fussy in my insistence that the two D-J Averages close above their May peaks, but whether they do or do not could be unbelievably important.


....read mor from 84 Year Old Richard Russell HERE 

The following is an excerpt from Richard Russell's Dow Theory Letters

Two days ago, amid all the low volume and sluggishness, the Transports gave us just a hint of something hopeful. It was a breakout of the declining trendline, as you can see on the chart. The Transports have been the laggers all year, and it seemed as though if the Industrials closed above their May peak, the Transports would not confirm. Now with this little upside breakout, the Transports are giving us a ray of hope. Maybe, just maybe, the Transports will add on a few more point, and get in the game.


Stocks & Equities

Markets: Turning Dates Psychology Volatility & Volume

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Posted by Victor Adair via VictorAdair.com

on Sunday, 19 August 2012 20:43

Market psychology: One of my all-time favorite market quotes is from the 1987 movie Wall Street wherein Gordon Gekko declares that, "Money itself isn't lost or made, its simply transferred from one perception to another."  Well perceptions have certainly changed...three months ago the market was very worried that the European financial crisis would spin out of control with contagion hitting all global markets...now fear is greatly reduced...especially since Draghi made his famous, "Whatever it takes," statement on July 26...and that change in perception has shown up across asset classes.

Stocks: since the Key Turn Date and Key Weekly Reversal of June 4 theDJI has closed higher 9 out of 11 weeks, is up 1175 points (~10%) and closed this week at its highest weekly close since 2007. Since Draghi's comments the major North American stock indices have risen ~5%, the German DAX is up ~11%, the UK FTSE is up ~7%, while Spanish and Italian stock indices are up ~25%!


VIX: the "fear" index, closed this past week at a 5 year low down ~50% from its June 4 Key Turn Date.


US and CAD interest rates: have risen sharply across the curve since Draghi's comments while Spanish and Italian bond yields have fallen sharply.

Gold: implied volatility is near its lowest point of the past10 years...gold has been trading in a narrower and narrower range over the past 4 months...breakout ahead?


Crude: WTI hit a low of $78 on June 28...it's now $96 up ~23%...Iran/Israel fears?

TSE: up 200 points on the week, up 755 (~6.5%) points since the June 4 lows.

Apple: hit a new all-time-high this week (up ~13% since Draghi's statement) with a market cap of over $600 Billion. To put that market cap in perspective....it's ~$200 Billion more than 2nd place Exxon, it's double the market cap of third place Microsoft...double the combined market cap of Canada's top 5 banks.

Royal Bank: closed at a 3 month high up ~16% from the June 4 lows...the broad US Bank Share Index is up ~15% from the June 4 lows.

CAD: is up over 5 cents from its June 4 lows at a 3 month high above 101.


Volume: share trading volume has been on a declining trend for the past few years and 2012 is on track to register the lowest annual volume in 15 years. This past week appears to be the lowest weekly volume in years...and it felt like it...summer doldrums in spades! (As an aside...the declining trading volumes and low interest rates are a double-whammy hitting the stock brokerage business...brokerage firms are losing money...expect consolidation across the industry.) If there is an Achilles heel to the recent stock market gains it may be that the rally has been on very light volume.

Money is mobile: Prices change as perceptions change...and as perceptions change money moves from one place to another...it moves from the center to the periphery...and back...from the "old reliable" to the exotic...and back...from low beta to high beta...and back...from New York to emerging markets...and back...from low yields to high yields...and back. A change in perceptions shows up across asset classes...in some sooner than others...in some more dramatically than others...by watching how these asset classes move relative to one another you can get a sense of how market perceptions are changing...you can find trading opportunities that "go with the flow."

Trading: my theme for the past several weeks has been that, "this market wants to go higher." I will maintain long positions in US stock indices in my short term trading accounts until the market shows me it no longer wants to go higher.



Stocks & Equities

The "Fear" Trade

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Posted by Rick Mills- Ahead of the Herd

on Friday, 17 August 2012 13:47

As a general rule, the most successful man in life is the man who has the best information

Stocks and interest rates are back to late spring – pre latest European fear levels - and the Jefferies/Thomson Reuters CRB index is at a three-month high.

Risk assets are obviously back in favor with investors - possible action by the European Central Bank (ECB) and the US Federal Reserve (Fed) could offer an explanation why:

  • There is speculation Fed Chairman Ben Bernanke could signal another round of quantitative easing at the Jackson Hole, Wyo. end of August Fed meeting
  • ECB President Mario Draghi promised to defend the euro so markets are expecting a move from Europe’s central bank

The CBOE Market Volatility Index, the VIX or “Fear Index” as it’s known recently hit its lowest level since the global credit crisis erupted five years ago.

Mike Dolan offers us an explanation of what the VIX is and questions why such high levels of investors complacency…

“Given almost biblical gloom about the world economy at the moment, you really have to do a double take looking at Wall Street’s so-called “Fear Index”. The VIX, which is essentially the cost of options on S&P500 equities, acts as a geiger counter for both U.S. and global financial markets.

Measuring implied volatility in the market, the index surges when the demand for options protection against sharp moves in stock prices is high and falls back when investors are sufficiently comfortable with prevailing trends to feel little need to hedge portfolios. In practice — at least over the past 10 years — high volatility typically means sharp market falls and so the ViX goes up when the market is falling and vice versa. And because it’s used in risk models the world over as a proxy for global financial risk, a rising ViX tends to shoo investors away from risky assets while a falling ViX pulls them in — feeding the metronomic risk on/risk off behaviour in world markets and, arguably, exaggerating dangerously pro-cyclical trading and investment strategies.

Well, can that picture of an anxiety-free investment world really be accurate? It’s easy to dismiss it and blame a thousand “technical factors” for its recent precipitous decline. On the other hand, it’s also easy to forget the performance of the underlying market has been remarkable too. Year-to-date gains on Wall St this year have been the second best since 1998. And while the U.S. and world economies hit another rough patch over the second quarter, the incoming U.S. economic data is far from universally poor and many economists see activity stabilising again.

But is all that enough for the lowest level of “fear” since the fateful August of 2007? The answer is likely rooted in another sort of “put” outside the options market — the policy “put”, essentially the implied insurance the Fed has offered investors by saying it will act again to print money and buy bonds in a third round of quantitative easing (QE3) if the economy or financial market conditions deteriorate sharply again.” Mike Dolan, Put Down and Fed Up, blogs.reuters.com


Risk On

There is no doubt in this author’s mind most people believe the world’s governments and central banks will step in with some form of quantitative easing. Current market conditions are clearly showing this.

In a risk on type of situation, meaning Draghi and Bernanke come through, commodities would seem like a good place to have my money.

Why? Well the long-term average ratio of the Commodities Research Bureau Index versus the S&P 500 is 1.5 times. This ratio indicates how much S&P 500 stock you can buy with a fixed basket of commodities.

The ratio was recently at 0.2 times - an all time low valuation between hard assets and financial assets.

Risk Off

There are many reasons “risk on” could suddenly become “risk off”:

  • Continued negative headlines from Europe
  • Weaker U.S., Chinese and global growth
  • Slowing corporate profits
  • Draghi or Bernanke, or both, fail to act

Bonds and gold are “risk off,” Fear Trade investments people buy when they want safety.


Unfortunately there’s something most bond investors do not understand – negative REAL interest rates.

“Over time even small levels of inflation can make a big difference in the purchasing power of your investment…If your rate of return isn’t greater than the rate of inflation, then the real value of your investment (the inflation adjusted value) drops and, with it, your spending power. So even though it looks like you have more money, you can actually buy less with it.” inflationdata.com

The benchmark US 10-year note currently yields 1.63 percent, yields on 30 year bonds are 2.75 percent.

The following is the inflation data for the first six months of 2012, the Inflation rate is calculated from the Consumer Price Index (CPI-U) which is compiled by the Bureau of Labor Statistics (BLS).

Jan 2.93%, Feb 2.87%, Mar 2.65%, Apr 2.30%, May 1.70%, June 1.66%

Treasury Inflation Protected Securities (TIPS) adjust your investment value according to changes in the Consumer Price Index (CPI) - the inflation rate - when there is inflation, or a rise in the CPI, the principal increases and, with deflation, the principal decreases.

John Williams, author of the newsletter Shadow Government Statistics, takes issue with the statistical methodology used by the US Bureau of Labor Statistics (BLS).

Williams says if the BLS hadn't altered its statistical practices over the years, inflation, as measured by the governments CPI, would have been reported about seven percentage points higher each year.

"the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent...at least through late 2014. The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities…This continuation of the maturity extension program should put downward pressure on longer-term interest rates" U.S. Federal Reserve Reaffirms Low-Rate Policy, June 20th 2012


The demand for gold moves inversely to interest rates - the higher the rate of interest the lower the demand for gold, the lower the rate of interest the higher the demand for gold.

The reason for this is simple, when real interest rates are low, at, or below zero, cash and bonds fall out of favor because the real return is lower than inflation - if your earning 1.6 percent on your money but inflation is running 2.7 percent the real rate you are earning is negative 1.1 percent - an investor is actually losing purchasing power. Gold is the most proven investment to offer a return greater than inflation (by its rising price) or at least not a loss of purchasing power.

Gold's price is tied to low/negative real interest rates which are essentially the by-product of inflation - when real rates are low, the price of gold can/will rise, of course when real rates are rising, gold can fall very quickly.

Fact - as long as real interest rates are low gold is in a bull market, there are no plans to raise interest rates for at least two years, indeed the Fed is actively working to lower longer term rates.



  • Since 1913 the US dollar has lost over 95% of its purchasing power
  • Gold has gone from US$20 an ounce to currently over US$1600.00 per ounce in the same time frame
  • Continuing low interest rates, combined with higher inflation rates will continue to cause low to negative real rates of return  


The “Fear” Trade comprises bonds and gold, if bonds aren’t worth holding because of negative real interest rates that leaves gold as the only true safe haven asset.


Is it risk on, or risk off? Are we looking at a fear trade situation where gold is the only true safe haven asset? Or will the world’s central banks open the monetary floodgates as many suspect is going to happen?

The actions of the world’s central banks should be on everyone’s radar screen. Are they on yours?

If not, maybe they should be.

Richard (Rick) Mills



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Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


Stocks & Equities

Bond Buyers in a Death-Grip - Where's That Selloff Cash Going?

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Posted by Richard Russell - Ross Clark

on Friday, 17 August 2012 07:29

The chart below reveals the month of August has not been kind to Bond investors. 

Bond buyers in a death-grip. Investors looking for safety have been piling into US Treasuries, even though it cost them, since they were receiving negative yields. It was one of the biggest bond bubbles in history. But now, it seems that the fun's over. The yield on the bellwether 10-year note is spurting higher as you can see on the daily chart below. As investors flee the notes and bonds, the yields (which are inverse to the price) head higher. The drop in bonds is going to cost investors billions in losses.  - Richard Russell of Dow Theory Letters


Suddenly a lot of cash suddenly lose and searching for a return.  The chart below argues powerfully that investors "fleeing" the Bond Market are going to lose a lot of purchasing power if they just put the money in their pockets.

Picture 2

With the Dow Jones moving up to less than 30 points from a 4 year high, cash is moving into Stocks.

 Richard Russell, a Dow Theorist again:

"Finally, a hopeful signal. Yesterday, amid all the low volume and sluggishness, the Transports gave us just a hint of something hopeful. It was a breakout of the declining trendline, as you can see on the chart. The Transports have been the laggers all year, and it seemed as though if the Industrials closed above their May peak, the Transports would not confirm. Now with this little upside breakout, the Transports are giving us a ray of hope. Maybe, just maybe, the Transports will add on a few more point,s and get in the game.

So investors are selling into 32 year Bond Bull Market that hit an extreme, never a bad idea. With that massive amount of cash flowing from a Bond Mkt that is 3 times bigger than the Stock Mkt, how high will that Stock Market go:

 Ross Clark of Institutional Advisors

"Historically the Sell Side Indicator, which is the consensus of opinion of the analysts in New York of what percentage of an investors portfolio should be in equities,  has ranged as low as 47% when everybody is quite negative to the high 60's when everyone is extreme bullishRemarkably right now the Sell Side Indicator is only 44%! Plotted against the S&P 500, the sell Side indicator phas a phenomenal record of revealing big upside moves in the market in the 20-30% bracket. 

In summary, at this moment Stocks not only appear to be a safer investment than Bonds, history say's they are about to rally  20-30%. 

Rob Zurrer for MoneyTalks.net


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