Do we care about the little things anymore or are they merely trifling datapoints in an empirical sea of economic expansion? Are those calling for the Big Top mining for negative indicators or are they seeing things before the crowd?
Apple’s lack of follow-through after destroying earnings is the big iElephant in the room, but very few people notice or seem to mind. Momentum fave Cree ($CREE) rocked for 13 percent after earnings, Goldman Sachs ($GS) and Citi ($C) report light quarters…is this thing on?
How about, for example, what Mark Arbeter had to say about the extended nature of this tape. Arbeter is the Chief Technical Strategist as S&P so listen up.
“As of (Thursday), the NASDAQ 100 was almost 16% above its 200-day simple average, nearly equaling the overbought levels we saw in the middle of April,” Arbeter wrote in his weekly commentary. “The only other time in the last 10 years that the NASDAQ 100 was this overbought or extended was in the fall of 2007.”
Investor sentiment is overly bullish, which usually signals a correction is coming, Arbeter adds. Based on Fibonacci analysis, Arbeter believes the S&P 500 could decline to 1,190 or 1,130, down 8% to 12.6% from Friday’s close at 1,293.
Or how about the comments of another notable technician, Tom DeMark, as recorded in BusinessWeek this morning:
U.S. stocks are within a week of “a significant market top” that is likely to precede a drop of at least 11 percent in the Standard & Poor’s 500 Index, said Tom DeMark, creator of a set of market-timing indicators.
DeMark’s Sequential and Combo indicators, designed to identify market tops and bottoms, are giving a sell signal on the main U.S. stock benchmark for the first time since mid-2007, he said in a telephone interview. The S&P 500 began its 57 percent plunge from a record in October 2007.
I am an intermediate-to-long term bull, but I can’t help but be sensitive to these warning signs. They are multiplying.
If you stop and think for a moment, it is obvious that failing to prosecute fraud is a bailout.
Nobel prize-winning economist George Akerlof demonstrated that if big companies aren’t held responsible for their actions, the government ends up bailing them out. So failure to prosecute directly leads to a bailout.
Fraud benefits the wealthy more than the poor, because the big banks and big companies have the inside knowledge and the resources to leverage fraud into profits. Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market. The giants (especially Goldman Sachs) have also used high-frequency program trading (representing up to 70% of all stock trades) and high proportions of other trades as well). This not only distorts the markets, but which also lets the program trading giants take a sneak peak at what the real traders are buying and selling, and then trade on the insider information. See this,this, this, this and this.
The stated purpose of quantitative easing was to drive down interest rates on U.S. treasury bonds.
But as U.S. News and World Reported noted last month:
By now, you’ve probably heard that the Fed is purchasing $600 billion in treasuries in hopes that it will push interest rates even lower, spur lending, and help jump-start the economy. Two years ago, the Fed set the federal funds rate (the interest rate at which banks lend to each other) to virtually zero, and this second round of quantitative easing--commonly referred to as QE2--is one of the few tools it has left to help boost economic growth. In spite of all this, a funny thing has happened. Treasury yields have actually risen since the Fed’s announcement.
The following charts from Doug Short update this trend:
Of course, rather than admit that the Fed is failing at driving down rates, rising rates are now being heralded as a sign of success. As the New York Times reported Monday:
The trouble is [rates] they have risen since it was formally announced in November, leaving many in the markets puzzled about the value of the Fed’s bond-buying program.
***
But the biggest reason for the rise in interest rates was probably that the economy was, at last, growing faster. And that’s good news.
“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”
Last November, after it started to become apparent that rates were moving in the wrong direction, Bernanke pulled a bait-and-switch, defending quantitative easing on other grounds:
Another earnings season is right around the bend and it’s shaping up to be very similar to the last 6 that we’ve seen. In short, cost cuts have created very lean balance sheets and corporations are leveraging up these lean balance sheets to generate respectable and “better than expected” bottom line growth. The result is an environment that continues to be unappreciated by the majority of investors.
The largest single cost input for most corporations is labor. During this recession we’ve experienced a near unprecedented decline in unit labor costs. As I mentioned yesterday, this massive cost cut is causing extraordinary pain on Main Street, but is actually helping to generate healthy margins for Wall Street. Although the cost cutting appears to have troughed in the last few quarters labor costs remain very low by historical standards. Rising input costs have started to put pressure on balance sheets, however, on the whole we should see fairly stable margins as long as unit labor costs remain low.
Revenues have been unspectacular in recent quarters, but low single digit domestic growth combined with double digit growth from Asia is helping to drive S&P 500 revenues per share in the right direction. So, we’re seeing continued cost cuts and relatively good revenue growth.
What does that mean? It means nice fat margin expansion. Although margins are still off their all-time highs they are fast approaching those levels. I would expect to see some stagnation in margins in the coming quarters as revenues continue to tick higher and costs continue to move north, however, with margins at record highs we can expect to see continued profit expansion.
What does it all add up to? It likely means we’re in for another quarter of “better than expected” earnings. The deeply negative sentiment and solid bottom line growth has created an investment environment that is ripe for outperformance. This is best reflected in my Expectation Ratio which has now forecast very strong earnings trends since Q2 2009. Based on the recent reading of 1.45 we can be quite confident that the state of corporate America remains quite strong.
The New York Fed’s equity crash prevention team of Sack-Frost has just released its most recent POMO schedule. Over the next month, ending on February 9, the Fed will purchase about $112 billion in debt in 18 discrete operations. And for the first time unlike the prior two QE2 monthly schedules, there is not one dual POMO day. From the release: "Across all operations in the schedule listed below, the Desk plans to purchase approximately $112 billion. This represents $80 billion in purchases of the announced $600 billion purchase program and $32 billion in purchases associated with principal payments from agency debt and agency MBS expected to be received between mid-January and mid-February." The days when there is no POMO will be Monday, January 17 and Wednesday, January 26. All other days have a POMO operation scheduled.
In 1968, 1,300 sanitation workers in Memphis went on strike. The Rev. Martin Luther King, Jr. came to support them. That was where he lost his life. Eventually Memphis heard the grievances of its sanitation workers. And in subsequent years millions of public employees across the nation have benefited from the job protections they’ve earned.
But now the right is going after public employees.
Public servants are convenient scapegoats. Republicans would rather deflect attention from corporate executive pay that continues to rise as corporate profits soar, even as corporations refuse to hire more workers. They don’t want stories about Wall Street bonuses, now higher than before taxpayers bailed out the Street. And they’d like to avoid a spotlight on the billions raked in by hedge-fund and private-equity managers whose income is treated as capital gains and subject to only a 15 percent tax, due to a loophole in the tax laws designed specifically for them.
It’s far more convenient to go after people who are doing the public’s work – sanitation workers, police officers, fire fighters, teachers, social workers, federal employees – to call them “faceless bureaucrats” and portray them as hooligans who are making off with your money and crippling federal and state budgets. The story fits better with the Republican’s Big Lie that our problems are due to a government that’s too big.
Above all, Republicans don’t want to have to justify continued tax cuts for the rich. As quietly as possible, they want to make them permanent.
But the right’s argument is shot-through with bad data, twisted evidence, and unsupported assertions.
They say public employees earn far more than private-sector workers. That’s untrue when you take account of level of education. Matched by education, public sector workers actually earn less than their private-sector counterparts.
The Republican trick is to compare apples with oranges — the average wage of public employees with the average wage of all private-sector employees. But only 23 percent of private-sector employees have college…
You and I live in a totally different world than the ultra-rich and the international banking elite do. Many of them live in a world where they simply do not pay income taxes. Today, it is estimated that a third of all the wealth in the world is held in offshore banks. So why is so much of the wealth of the globe located in places such as Monaco, the Cayman Islands, Bermuda, the Bahamas, and the Isle of Man? It isn’t because those are fun places to visit. It is to avoid taxes. The super wealthy and the international banking elite think that it is really funny that our paychecks are constantly being drained by federal taxes, state taxes and Social Security taxes while they literally pay nothing at all. These incredibly rich elitists make a ton of money doing business in wealthy western nations and then they transfer virtually all of their profits offshore where they don’t have to contribute any of it in taxes. It works out really great for them, but it sucks for the rest of us.
It is estimated that approximately $1.4 trillion is held in offshore banks in the Cayman Islands alone. According to an article in Forbes magazine, there is a total of approximately 15 trillion to 20 trillion dollars in offshore bank accounts, brokerage accounts and hedge fund portfolios.
A recent article in the Guardian stated that a third of all the wealth on the entire globe is held in offshore banks and that the vast majority of international banking transactions take place in these tax havens….
On a conservative estimate, a third of the world’s wealth is held offshore, with 80% of international banking transactions taking place there. More than half the capital in the world’s stock exchanges is "parked" offshore at some point.
All of the biggest banks in the world are involved in playing this game. All of them have big branches in these various tax havens. All of them work very hard to ensure that the tax burdens on their ultra-rich clients are as light as possible.
Nobody knows for sure how much money big governments around the globe are missing out on from all this tax avoidance, but everyone agrees the number…
In response to readers’ requests, I disclose my own amateur’s Investment Strategy for Q1 2011: cash is king, and the U.S. dollar looks good simply because almost everyone expects it to collapse.
Despite my oft-avowed amateur-market-observer status, readers often ask me for advice or opinions on where to put their capital. This is not advice (please read the HUGE GIANT BIG FAT DISCLAIMER below), it is a disclosure of my own personal opinion, what we might call "one investment strategy of many possible investment strategies" for the first quarter of 2011: cash, baby, cash all the way.
Why am I in cash? Because I don’t trust the parallel rallies, and I am extremely skeptical of the various "stories" which are driving the rallies. Why am I skeptical? Because everybody and their sister has bought into the stories, and a one-sided trade is rarely the winning one.
Yes, it’s my contrarian nature: when everyone is a believer in a "story" that is too good to be true, then I become skeptical. This often gets me in trouble. When everyone was buying GM at $50, I was shorting it. When everyone was buying Fannie Mae at $60, I was shorting it (via puts). Both GM and FNM were obviously, painfully insolvent, but it took practically forever for reality to intrude on the fantasy/narrative that each firm was a "solid blue chip" investment with numerous analyst recommendations. In the meantime, I lost money treading water for quarter after quarter.
So even though the market is clearly top-heavy, the short-side trade may yet be ground down by the Fed’s prop-job and the Wall Street/Central State partnership’s desperate desire to use a rising stock market as a propaganda proxy for the "recovery."
(Hey, just borrow and squander roughly 13% of GDP, year after year after year (roughly 45% of the entire Federal budget), and you might stimulate a modest "recovery," too.)
So let’s examine each of the "stories" driving the rallies.
1. The global recovery is solid, and Central State stimulus and quantitative easing will keep growth rising and interest rates low. This narrative drives capital into "risk assets," i.e. stock markets, commodities, FX carry trades, Chinese real estate, junk bonds, etc.
Oh boy is 2011 going to be an exciting year! Some things that I think might happen:
-Volatility is going up across the board. If you have the stomach for the swings that are coming across all markets there is a ton of money to be made; balls and timing are all that are necessary. The markets will create dozens of opportunities to make and lose.
-There will be 50 days with a swing in the S&P greater than 1%. There will be 10 days where gold swings $50. There will be two days with a drop greater than 100 bucks. Most of the big moves will be down moves. Bonds will not be spared the volatility.
-Gold will be higher a year from now but off its peak. At some time in the fall, gold will be near 1,800 and the New York Times will do a front-page story that gold is on its way to 2,000. That will be the high point of the year.
-Copper will continue to rise. This metal will benefit as the poor man’s gold. Why buy an ounce of something for $1,600 when you can have a whole pound of something else for only $5? The logic is compelling only because there is no logic. Increasingly, it will become understood that money does not hold value. Copper will do a better job of storing value then a Treasury Bond.
-The US bond market is in for a heck of a year. The 30-year will trade at BOTH 3% and 5%. Higher rates will come early in the year, then the deflation trade will come back into vogue.
-Spain will be the next sovereign debtor that falls prey to the market. This will happen before the end of the 1st Q. The package to bail them out will exceed $500b. This will exhaust the EU resources. There will be very high expectations that contagion will then move to Italy. That will not happen in 2011 (2012?) The European Central Bank will step up to the table (finally) and support the market for Italy. Sometime between March and June Italian bonds will be a great buy.
-The IMF will contribute $125b to the Spanish bailout. The US portion
Jobless claims improve while leading indicators decline in today’s economic report card
by Wall Street Sector Selector Staff
Weekly jobless claims declined to 424,000 from last week’s 432, 000 but stubbornly stayed above the all important 400,000 level for another week.
August Leading Indicators came in at +0.3% compared to 0.5% for July, as the economy continues registering weakness.
Good news came from July Home Prices which rose to +0.8% from the previously reported +0.7%.
But the biggest economic news of the week came yesterday when the Federal Reserve said it saw “significant downside risks to the economic outlook, including strains in global financial markets.”
Global stock markets responded negatively yesterday an...
Shares of Priceline.com Incorporated (NASDAQ: PCLN) are trading higher in the after-hours following the release of its Q1 earnings results. Currently, shares are up 2.74%, trading at $548.60; they closed the regular session down 0.67 %, at $533.97.
The company said that its Q1 EPS came in at $2.66 on revenues of $809.3 million; this compares to the Street's estimate of $2.46 per share on revenues of $779.5 million. Revenues rose 38.6% year over year.
"In the 1st quarter, the Group benefited from strong growth in our global hotel business, particularly at Booking.com and Agoda," said Jeffery H. Boyd, Priceline President and Chief Executive Officer.
He added, "Room nights booked grew by 55.8% and our international gross bookings grew by 79% compared to prior year...
The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, "the explosion at an earthquake-damaged nuclear plant was not caused by damage to the nuclear reactor but by a pumping system that failed as crews tried to bring the reactor's temperature down, Chief Cabinet Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to flood the reactor containment structure with sea water to bring the reactor's temperature down to safe levels, he said. The effort is expected to take two days." While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: "Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation ...
Note from dshort: I retired this chart series last summer in deference to my prefered inflation-adjusted series that aligns the S&P 500 2000 high with the Nikkei peak in 1989. However, I continue to receive requests for this version, despite the "V" shape of the the recovery since the March 2009 low. This chart series overlays the current S&P 500 with the L-shaped "recoveries" after the Dow Crash of 1929, the Nikkei 225 after Japan's 1989 bubble, and the post Tech Bubble NASDAQ. Click the chart below for a larger version and use the links to see various comparisons.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
This post is for live trades and daily comments. Please click on "comments" below to follow our live discussion. All of our current virtual trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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The following is an excerpt of my much longer roundup of the 
In 1968, 1,300 sanitation workers in Memphis went on strike. The Rev. Martin Luther King, Jr. came to support them. That was where he lost his life. Eventually Memphis heard the grievances of its sanitation workers. And in subsequent years millions of public employees across the nation have benefited from the job protections they’ve earned.
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(