Lies, Damn Lies: OMG Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. In other words, markets are a thief and must be treated like one whenever attempting to interpret their message. These are simply thoughts (some completely random) as I attempt to connect the dots: The inherent conflict that has existed between the Fed and White House is nothing new. In fact, there have been numerous times throughout history when the Fed is pursuing tightening in monetary policy while the White House is spearheading an aggressive fiscal campaign. The Fed will remain true to its mandate, spoken or not, irrespective of interference from the White House. Whether Trump can actually have Powell removed is another subject. Should the markets continue to slide in 2019 I can't see him not making a valiant attempt. Bid to cover ratio on recent 2 year and 5 year treasury issuance is extremely thin. In other words, there is little demand for U.S. debt. Foreign central banks and institutions are stepping back due to negative dollar hedged returns, leaving only U.S. institutions, such as banks, pensions etc. to do the bidding. This dilemma will only be amplified in the new year as funding costs for the U.S. are set to increase. The next version of QE, if it comes, will look nothing like the last. Expect yields to jump and the dollar to dive. The theme in 2019 may just be "how the Fed lost control of the financial markets." What happens when 401k statements and hedge fund capital balances are seen by investors in January? There will be redemptions galore. If your financial advisor is down in line with the market this year then they are a premium priced ETF with a voicebox that regurgitates news on a daily, weekly or monthly basis. 2018 flipped the market into an environment where skilled investors can generate alpha. I expect it to remain that way for years to come. Chinese conglomerates have been on a global buying binge driving up everything from real estate, to equities, to nightly high end hotel charges. Their appetite for accumulation seems to be shifting to a more nationalistic tone, however. This could turn into a very real theme in the years ahead. An article on it here http://www.globaltimes.cn/content/1133609.shtml As much as the markets have turned...
Lies, Damn Lies – Santa Is A Hater Edition
Every day I go through roughly 200 stocks/indices/indicators, several times per day, looking for signals, attempting to connect dots and ultimately, hoping to find risk/reward situations that create outperformance. The title Lies, Damn Lies seems appropriate as when the markets want to reveal any kind of truth, they first do so through blatant lies. Conversely, whenever truth appears apparent, there is likely to be deception involved. In other words, markets are a thief and must be treated like one whenever attempting to interpret their message. These are simply thoughts (some completely random) as I attempt to connect the dots: The S&P is on track to have one of its worst quarterly performances ever. As of today, it stands as the 14th worst quarter for the S&P in market history with a loss of 17%. Without going back into the Great Depression years, here is what happens the next quarter after experiencing despondent annihilation in the previous quarter: Q3 2002 -17% Q4 +10% Q2 1970 -18% Q3 +11% Q3 1946 -18% Q4 +3% Q2 1962 -21% Q3 +3% Q4 2008 -22% Q1 -13% Q4 1987 -23% Q1 +3% Q3 1974 -25% Q4 +1% In November I said that the downside on Apple was 150-160. After witnessing the price action over the past several weeks, it's now apparent that Apple will move below 100 at some point in 2019. Perhaps far below. There doesn't seem to be a chance in hell AMZN can escape all of this without moving back into the triple digits. It will bounce with the rest of the market. However, in 2019 it will have a 9 handle and then perhaps 8 or 7. Private equity firm ARES is highly susceptible to a slowdown in the business cycle as they are heavily involved in CLOs to businesses that have become popularized due to the fees enjoyed by those who participate. Economic downside will turn those companies exposed to these assets into one-eyed zombies. Here is a recent Bloomberg piece describing the absurdity of it all https://www.bloomberg.com/graphics/2018-collateralized-loan-obligations/ BABA is a terrific short candidate on any future rallies. I'm increasingly compiling a list of companies to short in 2019 when the market strengthens. This is a top of the list candidate. BRKB could be headed to 130 in the next 6-12 months. Another short candidate. While I don't like the dilution in BTG, it's an attractive name in the gold sector. Like other miners, their management is paid far too much and they dilute shareholders ad infinitum. Don't own it. Already have our favorite name in the sector, but BTG is an attractive option. Looks like the Nasdaq Comp is...
Making The Case For Gold
As an investment gold has a cult like following among a rigidly fanatical group of aficionados who like to use words like “fiat” and “ponzi” as often as possible. They discuss the metal as if it has mystical properties that will provide them with protection regardless of the circumstance, having thousands of years of history on their side as evidence of the utility of gold as an investment, a currency and ultimately an insurance policy against all the eventualities of mankind. For this reason gold is often seen by most investors as an instrument of the paranoid to protect against an unseen, unrealistic set of risks that are so anomalous that even mere consideration of gold as an investment is a waste of time. Outside of the realm of fanaticism and paranoia, the function of gold within an investor's portfolio is extraordinarily simple: During times of turbulence it acts as an insurance policy. It is effectively an unexpiring put option against monetary policy mistakes; aggressive acts of fiscal stimulus; conflicts between world governments; geopolitical risk AND tumbling equity markets. Before proceeding any further, let me clear: If it wasn't for the breakout that occurred in 2001/2002 for gold that propelled the metal from the $300 range close to $2000 before experiencing a 44% retracement between 2011 to present day, I wouldn't be discussing the metal at all. In other words, if gold was still sitting at $300 and the massive, long-term shift in the secular trend had not taken place, then it wouldn't be worth mentioning. Gold is only worth discussing because it is now in a long-term uptrend. The move down in recent years is simply a pause in that uptrend, with a resumption set to take place at some point in the not too distant future. As with everything I do in the markets, the foundation for my interest in gold is technical/pattern recognition driven in nature, further backed by fundamentals that support the technical/pattern recognition data. There are statistically significant patterns being developed in both physical gold and gold miners that are some of the most productive in a market devoid of productive bullish patterns. Most strikingly, perhaps, is the symmetry that has occurred between the secular low in 2000 for gold and the low in 1970, followed by the behavior in the metal in the years following. Here are some highlights: Both lows occurred at the turn of a new decade (1970 & 2000) Both lows occurred around shifts in the global currency system (1971 cancellation of Bretton Woods & 1999 introduction of the Euro) Both lows occurred after multiple decades of disinterest in gold...
Revisited: Financials Are Setting Up To Lead The Markets Down
In what seems like an appropriate moment to bring the subject back to life, a follow up to my early February article titled "Financials Are Setting Up To Lead The Markets Down" seems due. Despite the recent strength in technology and small-caps, a continuing stench continues to envelop the equity markets. Everything from the tumultuous relationship equities have developed to interest rates to the general market action, which is being defined by volatility as a result of illiquidity. The only path of seeming consequence for investors is to pile into a simpleton group of investments that define the current socioeconomic landscape. The justification to invest in the FANG names, as the most obvious example, is based more on a reluctant acceptance that you really have very few other options as an investor. The only other options are lesser versions of FANG names that have provided more substantial returns, however, carry with them not only more risk, but the responsibility to perform due diligence in order to be able to understand your investment. Momentum in the FANGs spills over to various technology based small cap names and voila...bulls suddenly have justification for all the other ills underpinning the economy and the markets. The theory that small-caps and technology leads bull markets is good one and a proper one, for that matter. It has been substantiated statistically over time. However, may I remind you dear reader that the equity markets are neither static or kind. And for that reason, such suggestions, at this point in the secular bull market cycle, should be greeted with a fair amount of skepticism, at a very minimum. Back to financials: click chart to enlarge Since the last time we checked on financials in early February they have gone nowhere. It seems like nowhere remains a best case scenario for them moving forward. The ramifications for the broader markets remains a general malaise that will likely only be broken by downside volatility that could become exponentially larger as we enter the summer...
Crude Oil Is About To Complicate Our Financial Lives
While most are discounting the possibility of anomalous events taking place in this new era of low volatility, group think, crude oil is but one component that is shaking its finger from side to side threatening to force acts of dynamic thought. This month of April has been the most significant for crude since it broke down in 2014. Of course, we need further confirmation in the months ahead by either holding onto the gains or accelerating them. It does look, however, like we could be seeing the beginning stages of a move to 160+ for crude oil. This is being further confirmed by yields, which are pointing to inflationary forces bubbling or perhaps, boiling over. click chart to enlarge Everything has changed in...
Everything Has Changed in 2018
The foundation of the markets for the entirety of this bull market has undergone a massive shift in 2018. All the meanwhile, a majority of market participants are stuck in level one, simpleton thinking mode, which has grabbed the collective hands of equity investors, guiding them blindfolded to the edge of a cliff, with promises of paradise on the horizon. All of the reasons equity investors have to be bullish is based on knowledge that is abundantly obvious and therefore, already completely baked into the picture being presented. Irrelevant, in other words. Earnings? Irrelevant. Tax cuts? Irrelevant. Fiscal stimulus? Irrelevant. Deregulation? Irrelevant. All of these well known hooks to hang your hat on if you're bullish were fantastic in 2017 because there was actual doubt surrounding their implementation and relevance. What we have now are the following emerging facts that investors are unsure of how to interpret, therefore, warranting concern over their future relevance: The secular bear in interest rates may be over. Commodities, led by energy, are entering a significant uptrend. The financial markets are structurally unsound and untested due to prevalence of passive products dominating investment landscape for the first time in history. All the meanwhile the S&P 500 is carving out a bearish pattern below resistance: And the most relevant leader in technology is telegraphing substantial weakness in the sector moving forward: Oil has experienced a substantial breakout in recent weeks. It may just be getting started: Leading to the final piece of the puzzle...yields. The yield on the ten year saw a minor rejection this week right at the 3% mark, which just so happens to coincide with a multi-decade trajectory point. An eventual substantial move above 3% is an inevitable conclusion to this saga. With a strong likelihood of something in the 3.5% range by year end. It's time for investors to take the macro picture very seriously, as the old tune of earnings and corporate prowess are due to take a backseat to inflation and interest rates. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not...
This Is What A Repugnant Market Looks Like
The chart below is of the S&P 500. This gives as clear an indication of the repugnance of the current situation as any, with eventual bearish consequences once earnings season is over. (click chart to enlarge) This remains a market that is prone to readjustment as everything from the potential permanency of a higher interest rate environment, to governmental and geopolitical fears reinforce price weakness. As discussed in the notes of the chart above, past May into the summer and fall really have the potential to make the volatility we have experienced recently look like a relatively calm period in comparison. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding capital markets or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in, the transmission thereof to the user. With respect to information regarding financial performance, nothing on this website should be interpreted as a statement or implication that past results are an indication of future...
Financials Are Setting Up To Lead The Markets Down
With that said, the potential exists for a retracement of the entirety of the 2017 gains for financials. And it comes at really what is the perfect time: Everyone believes that macro tailwinds are incontrovertible for the space. The only thing incontrovertible is that markets punish consensus opinion backed by overwhelming asset allocation, creating doubt where there was once conviction. These cycles occur regardless of the fundamental backdrop and very often end up influencing the fundamental backdrop greatly. That's a subject for another article, however. The chart below paints the picture. Financials are starting to wobble at the worst point possible, against two trajectory points of tremendous relevance that only increase the probability of this being a substantial turning point for the markets as a whole. (click chart to...
Here Is Why The Markets Should Generally Suck For The Rest Of 2018
Expansions of volatility after blowoff moves are generally a death knell in and of themselves. Expansions of volatility after blowoff moves, accompanied by historically high levels of optimism only serve to further sink in the dagger. But when you get an expansion of volatility, accompanied by historically high levels of optimism, while vacillating around a technical point of relevance going back to some of the most important highs and lows of the past two decades......then you have a real issue. (click chart to enlarge) With that said, this remains one of the worst spots to be long equities of this entire bull run starting in 2009. Downside is at a minimum to 2,200 on the S&P at some point in 2018, for a roughly 23% decline from the top tick in...
Putting Everything In Context With 6 Charts
The US Dollar has now given up nearly the entirety of its post-election gains. An economic divergence suggesting that the post-election confidence in economic policy is waning. click chart to enlarge In the meantime, yields have once again taken the road less traveled (or the road driven to death dependent on how you look at it), threatening to once again move into the 1% range, which is one of the biggest macro surprises as we move towards the halfway point of 2017. A move below the 2% support area seems to be imminent. Transports refuse to be a participant in the celebration of U.S. economic vitality, as they are lagging in a worrying fashion, with future prospects of a move below 8,000. And financials, while not looking as ominous as Dow Transports, are putting in a classic head and shoulders pattern with increasing distribution taking place on the XLF as the right shoulder forms. This is very simply a confirmation of the pattern. Individual blue chip financials are further confirming the pattern in the XLF as they look at be susceptible to weakness going forward. Long-term view of the Nasdaq 100 here. The trajectory going back to the 1990 low has marked support, resistance and acceleration of trends in the past. I suspect that given the reluctance of the NDX to clear above the line in a hurry, via a substantial acceleration, that the trajectory will act as a force of gravity, pulling the average below the trajectory over the next few months. A move below 5,000 on the NDX wouldn't be unusual in the least bit. In fact, it should be expected. The SOX faces a similar issue. It is now below its trajectory, with the trajectory acting as a point of resistance. This indicates an early change in trend for what is an extremely important leading indicator for...