Free Editorial

Janet's Kool-Aid Stand

From the November 10, 2015 HRA Journal: Issue 242

It’s all good.  Just ask Janet Yellen or any hawkish Federal Reserve board member.  Indeed, there have been some better readings on the US economy lately but things are far from outstanding. 

Plenty of equity traders suddenly expect new highs on the major markets any day now.  The bond market is pricing in 70%+ probability of a December rate hike.  This time around markets are not jittery because the Fed has assured us offshore problems won’t touch the US.  Let’s hope they are more right about that than they were four short months ago.

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Bad News Is Good News. For Now.

From the October 21, 2015 HRA Journal: Issue 241

Since the last issue the “optimistic scenario” has been the clear winner.  Traders continue to expect the Fed to hold off.  That has been enough to keep NY trending higher though the trajectory is flattening out.  Economic readings haven’t improved.  It will take plenty of upside surprises though earning season to keep the trend alive.

The trend has been more evident in Europe, Japan and China. All released weak readings and all have traders that expect their respective central bankers to refill the punchbowl.  Let’s hope they do.

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A Fork in the Road?

From the October 4, 2015 HRA Journal: Issue 240

Oy, that Coffin!  More indecision?  ‘Fraid so.  I still see a bear market confirmed before year end as the likely scenario. But, as of a couple of days ago there is a new storyline in town.  This new one involves the Fed throwing up its hands and giving up on the idea of raising interest rates.  That’s not what Fed governors are saying but it’s what an increasing number of traders believe.

I don’t believe the new storyline yet myself and I don’t expect the Fed to admit to it if they do.  Unfortunately, the Fed now has less credibility than a Baptist preacher in a whorehouse.  They brought that on themselves by wimping out repeatedly in the past two years so I’m not sympathetic. If the trend in earnings and GDP I discussed in the main editorial comes to pass the Fed’s hand will be stayed no matter what they want. 

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Remain Calm and Move Quietly Towards the Exit

From the September 15, 2015 HRA Journal: Issue 238-239 

I did a lot of agonizing about this month’s main editorial and, truth to tell, I’m still partially on the fence about the market’s major direction.  I think the odds of a drop of bear market (20% plus) proportions is very high right now, I’m just not sure how fast it will happen.

If the US Fed really fumbles at the next meeting for instance hiking rates without clearly enunciating it won’t do it again for quite a while we could see the next down leg in days.   If the Fed stands pat and does a great job of calming nerves that may put off further drops but I think the relief will be fairly temporary.  I see no reason to think we won’t see another quarter of lower profits and perhaps lower revenues as we move through Q3 reporting next month.  Barring some sort of valuation voodoo I don’t think the market can hold up to three of those in a row.   

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A Cold Wind from the East

From the August 17, 2015 HRA Journal: Issue 237

Well, that wasn’t fun.  Gold plunged through $1140 and toyed with $1080 for three weeks before making a small comeback.  You can make a case the drop and the reaction to it being the “capitulation event” we’ve been waiting for but I’m not totally sold on that.   I still want to see that first Fed rate hike next month which  I think is more likely to mark a bottom though the longer gold holds above $1100 the stronger the case for the last plunge being “it”.

China provided the black swan with its Yuan depreciation.  How far that goes remains to be seen.  Beijing is managing the Shanghai market “well” so maybe it has the same luck with the currency. 

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From the July 16, 2015 HRA Journal: Issue 236

Right now it looks like Greece will be resolved though I think it’s destined for a fourth bailout which won’t be completed.  Hope I’m wrong about that but the debt mountain is getting to be un-scalable and the damage to its banking system worsens hourly.

Chinese markets look like they will get a reprieve either though volatility is so high in that market its dangerous to read much into one and two day moves.   Interventions like this don’t work most of the time.  Assuming this one won’t either is simply betting the odds.

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From the June 28, 2015 HRA Journal: Issue 235

As I’m sure most of you figured out long ago I write this sidebar last.  Quite a bit has happened in the past 24 hours only some of which is dealt with in the issue.

Greece is obviously a big deal in Greece but I still think the damage is containable and largely contained already.  I don’t expect markets to be happy if Grexit happens in the next week or two but I’m not convinced its crash material either.  Indeed, unless some markets trade substantially worse in coming days it should be clear even to the Syzira caucus that they badly overplayed their hand.  The simple truth is that the Greek economy is not that important, something that should have been factored into the game theory a bit better.

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From the June 9, 2015 HRA Journal: Issue 234

Summer’s here.  That global warming thing sucks for most of the planet but its done wonders for the weather in the Pacific Northwest and Canada’s west coast. You can see the impact of longer sunnier days already in the local markets which are seeing lighter volumes and in calls to brokers during the trading day.  The background noise sounds suspiciously like a patio full of drinkers rather than an office.  Probably just a line problem.

We all expect summers to be slow and boring in the markets.  So much so that it’s usually a self-fulfilling prophesy. That doesn’t mean we should completely ignore the markets though.  Summer often gives us a foretaste of the autumn.  If we see even a little positive action during the doldrums we’re usually set up for a better fall market. 

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Central Banker Speak

From the May 25, 2015 HRA Journal: Issue 233

We near the end of May with most major indices again at or near record territory.  Traders have pushed back their estimates of the first Fed rate increase.  This came in the face of slightly stronger US economic readings and slightly weaker ones just about everywhere else. 

Gold is holding its range better than the last three times and base metals are trading better than most mainstream publications would have you believe. More importantly, companies with real good news continue to see traction. That is the first step to the resource sector rebuilding itself – if it lasts. 

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Who to Believe?

From the May 6, 2015 HRA Journal: Issue 232

Markets, or rather the inter-relationships between markets, just seem to get stranger.  The US puts out weaker than expected economic readings but bonds locally and overseas trade like the odds of a rate increase are better.  That doesn’t translate to the US Dollar at all which seems to be falling off its pedestal. 

The falling dollar lights a fire under a number of commodities, even hapless iron ore, but has no positive impact on precious metals that have a currency trading component.   It’s hard to know which market you should trust or take a cue from, assuming you should trust any of them of course.

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