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Timing & trends

The 3 Most Popular Articles Of The Week


Posted by Money Talks Editor

on Saturday, 21 October 2017 07:24

hammock-on-beach1. How Much Money Do You Need To Retire On Dividends Alone?

For the past 18-years Ryan Irvine has had a remarkable track record with average returns well over 30% annually over the last 4 years. Ryan tells Michael and the Money Talks audience today about the cash generating and under followed small-cap stocks that he has found. Between 1926 - 2004 Small-cap stocks averaged a 15.9% return compared to only 9.26% for Large Caps and thats the reason Warren Buffet laments he has grown to large to buy them.

...read more HERE

2. Victor Adair: This Tremendous Rally in Share Prices

This tremendous rally in share prices has been fueled by a $15 Trillion tsunami of Quantitative Easing from the Big Four central banks (and who knows how much “accommodation” from the People’s Bank of China) and even though the Fed has announced a very modest program of “Quantitative Tightening” the ECB and the BoJ will continue with their “stimulative” programs.

....continue HERE

3. Warning: 43% of Giant Eurozone Banks in Danger

by Martin D. Weiss PH.D

"This hard data confirms our view that, among the economic superpowers, the United States continues to win the Miss Universe crown for the “least ugly.”

....read it all HERE



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Timing & trends

Calm Before The Storm


Posted by Peter Schiff - Euro Pacific Capital

on Friday, 20 October 2017 07:35

In light of the 30-year anniversary of the Black Monday Crash in 1987 (when the Dow lost more than 20% in "one day", we should be reminded that investor anxiety usually increases when markets get to extremes. If stock prices fall steeply, people fret about money lost, and if they move too high too fast, they worry about sudden reversals. As greed is supposed to be counterbalanced by fear, this relationship should not be surprising. But sometimes the formula breaks down and stocks become very expensive even while investors become increasingly complacent. History has shown that such periods of untethered optimism have often presaged major market corrections. Current data suggests that we are in such a period, and in the words of our current President, we may be "in the calm before the storm."

Many market analysts consider the Cyclically Adjusted Price to Earnings (CAPE) ratio to be the best measure of stock valuation. Also known as the “Shiller Ratio” (after Yale professor Robert Shiller), the number is derived by dividing the current price of a stock by its average inflation-adjusted earnings over the last 10 years. Since 1990, the CAPE ratio of the S&P 500 has averaged 25.6. The ratio got particularly bubbly, 44.2, during the 1999 crescendo of the “earnings don’t matter” dotcom era of the late 1990’s. But after the tech crash of 2000, the ratio was cut in half, drifting down to 21.3 by March of 2003. For the next five years, the CAPE hung around historic averages before collapsing to 13.3 in the market crash of 2008-2009. Since then, the ratio has moved steadily upward, returning to the upper 20s by 2015. But in July of this year, the CAPE breached 30 for the first time since March 2002. It has been there ever since (which is high when compared to most developed markets around the world). (data from Irrational Exuberance, Princeton University Press 2000, 2005, 2015, updated Robert J. Shiller)

But unlike earlier periods of stock market gains, the extraordinary run-up in CAPE over the past eight years has not been built on top of strong economic growth. The gains of 1996-1999 came when quarterly GDP growth averaged 4.6%, and the gains of 2003-2007 came when quarterly GDP averaged 2.96%. In contrast Between 2010 and 2017, GDP growth had averaged only 2.1% (data from Bureau of Economic Analysis). It is clear to some that the Fed has substituted itself for growth as the primary driver for stocks.

Investors typically measure market anxiety by looking at the VIX index, also known as “the fear index”. This data point, calculated by the Chicago Board Options Exchange, looks at the amount of put vs. call contracts to determine sentiment about how much the markets may fluctuate over the coming 30 days. A number greater than 30 indicates high anxiety while a number less than 20 suggests that investors see little reason to lose sleep.

Since 1990, the VIX has averaged 19.5 and has generally tended to move up and down with CAPE valuations. Spikes to the upside also tended to occur during periods of economic uncertainty like recessions. (The economic crisis of 2008 sent the VIX into orbit, hitting an all-time high of 59.9 in October 2008.) However, the Federal Reserve’s Quantitative Easing bond-buying program, which came online in March of 2009, may have short-circuited this fundamental relationship.

Before the crisis, there was still a strong belief that stock investing entailed real risk. The period of stock stagnation of the 1970s and 1980s was still well remembered, as were the crashes of 1987, 2000, and 2008. But the existence of the Greenspan/Bernanke/Yellen “Put” (the idea that the Fed would back stop market losses), came to ease many of the anxieties on Wall Street. Over the past few years, the Fed has consistently demonstrated that it is willing to use its new tool kit in extraordinary ways.

While many economists had expected the Fed to roll back its QE purchases as soon as the immediate economic crisis had passed, the program steamed at full speed through 2015, long past the point where the economy had apparently recovered. Time and again, the Fed cited fragile financial conditions as the reason it persisted, even while unemployment dropped and the stock market soared.

The Fed further showcased its maternal instinct in early 2016 when a surprise 8% drop in stocks in the first two weeks of January (the worst ever start of a calendar year on Wall Street) led it to abandon its carefully laid groundwork for multiple rate hikes in 2016. As investors seem to have interpreted this as the Fed leaving the safety net firmly in place, the VIX has dropped steadily from that time. In September of this year, the VIX fell below 10.

Untethered optimism can be seen most clearly by looking at the relationship between the VIX and the CAPE ratio. Over the past 27 years, this figure has averaged 1.43. But just this month, the ratio approached 3 for the first time on record, increasing 100% in just a year and a half. This means that the gap between how expensive stocks have become and how little this increase concerns investors has never been wider. But history has shown that bad things can happen after periods in which fear takes a back seat.

VIXCAPE5



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Asset protection

Catalonia’s Suspended Autonomy and Gold


Posted by Arkadiusz Sieron

on Friday, 20 October 2017 07:28

Spain’s central government said that it would suspend Catalonia’s autonomy on Saturday. What does it imply for the gold market?

As we informed on Tuesday, Madrid set Thursday morning as the ultimate deadline for Catalonia to declare independence or its willingness to remain a part of Spain. But Catalan president Carles Puigdemont ignored the deadline and did not clarify his position. Instead, he wrote a letter to Rajoy, threatening with a formal declaration of independence in the regional parliament:

“If the government continues to impede dialogue and continues with the repression, the Catalan parliament could proceed, if it is considered opportune, to vote on a formal declaration of independence.”

In response, the Spanish government is to suspend Catalonia’s autonomy on Saturday. In a statement, the central government wrote:

“At an emergency meeting on Saturday, the cabinet will approve measures to be put before the senate to protect the general interest of Spaniards, including the citizens of Catalonia, and to restore constitutional order in the autonomous community.”

Although the crisis over Catalonia deepened (importantly, two pro-independence organizers, Jordi Cuixart and Jordi Sanchez, were imprisoned on Monday), investors were unmoved. Actually, the euro rose against the U.S. dollar yesterday, as one can see in the chart below. So the price of gold increased as well.

Chart 1: EUR/USD from October 17 to October 19, 2017.

2017-10-20-1-gnm



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Timing & trends

A 2-3% Correction Could Wipe Out Most VIX Short Sellers


Posted by John Maulding via Seeking Alpha

on Friday, 20 October 2017 06:55

Summary

- Did you know that there have been 39 times since 1990 when the VIX has closed below 10, and that 30 of those times have happened this year?

- And 15 of those have been in the last 30 days!

- A 2% or 3% move down in the markets could cause short covering in the VIX that could quickly spiral out of control.

Did you know that there have been 39 times since 1990 when the VIX has closed below 10, and that 30 of those times have happened this year? And 15 of those have been in the last 30 days!

Ed Easterling of Crestmont Research sent me recently an updated chart of the VIX Index. Notice that the all-time low of 9.19 was put in on October 5, 2017.

saupload 171016 OP Correction image1

.....continue reading HERE

....also from Seeking Alpha:

Ray Dalio's Shorting The Entire EU



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Stocks & Equities

Todd Market Forecast: Keep Riding This Horse 'till it Gives Out


Posted by Stephen Todd - Todd Market Forecast

on Friday, 20 October 2017 05:46

Todd Market Forecast for 3:00 Pacific Thursday October 19, 2017

DOW + 5 on 9 net advances

NASDAQ COMP - 19 on 419 net Declines

SHORT TERM TREND Bullish

INTERMEDIATE TERM Bullish

STOCKS: Some negative news from Europe and some downbeat earnings hit an overbought market and the result was a sharp decline at the opening with the Dow down 104 points.

However, like so many times before, the decline was soon halted and the remainder of the session saw buying come in. This market is like a ball being pushed under water. It keeps popping back up.

This is even more remarkable given the fact that this is October, the month of so many sharp drops in previous years.

Perhaps the memory of the sharpest one day drop in history exactly 30 years ago played a bit part in this drama in the very early going.

But our task is simple. We're going to keep riding this horse 'till if gives out. We'll stay with our positions.

GOLD: Gold was up $3. Just a small move without consequence. At least for now.

CHART: The S&P reversed and maintained its bullish posture. These kinds of reversals tend to be bullish more often than not.  

Screen Shot 2017-10-19 at 6.10.36 PM

BOTTOM LINE:  (Trading)



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