GDP Denial

The Stock Market's GDP Denial Could End Badly









Denial ain't just a river in Egypt.
--Mark Twain

So let me get this straight: The GDP revision for first quarter came in far worse than economist estimates, and the stock market simply doesn't care? Enough with the weather excuse. Enough with the Russia excuse. The bond market since day one of this year has been pessimistic on the economy. So far, data proves that Treasuries are right. Something is very much amiss in the narrative that stocks continue to put false belief in, and the way deflation trades are behaving. This is no longer opinion. This is no longer conjecture. We cannot simply turn a blind eye to data that is weak and argue that all bad news is good news for stocks. At some point, bad news is bad news.

At some point, volatility will rise from the ashes of complacency.

The biggest and most disturbing thing thus far about the stock market's denial of the economy is the stock market's denial of itself. Utilities have been remarkably strong all year, albeit in most recent days weakening just a bit at the margin. Treasuries have been shockingly strong. More problematic than all this, however, is the market internally not believing in the consumer anymore. We all know just how important consumer spending is to the economy. A healthy economic environment should be led by stocks, which are most sensitive to the economy. Conversely, when consumer stocks are weakening, the market may be anticipating some kind of slowdown more broadly ahead, which equity averages would then act with a lag to.

That's kind of happening, isn't it? Take a look below at the price ratio of the SPDR S&P Retail Index (NYSEARCA:XRT) relative to the S&P 500 ETF(NYSEARCA:SPY). As a reminder, a rising price ratio means the numerator/XRT is outperforming (up more/down less) the denominator/SPY. This is one of the uglier relative charts that one can view markets through the lens of, and is sending a clear message: Stock market denial is real and can only persist for so long.



My firm's ATAC (Accelerated Time and Capital) models used for managing our mutual funds and separate accounts are getting considerably closer to another defensive rotation. The complacency occurring in the here and now is utterly stunning, and several intermarket trends are sending the same message.

Denial can keep asset prices afloat, but at some point even the most stubborn of risk-takers will learn the hard way that risk management needs to be done before the decline occurs -- not after.

Twitter: @pensionpartners

Wall Street: 98 Risk of Crash This Year

Wall Street: 98 Risk of Crash This Year: "Wall Street: 98% Risk of Crash This Year
Thursday, 29 May 2014 04:25 AM
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Earlier this year, a select group of Wall Street Insiders were surveyed, and the results were ominous. These financial experts and fund managers predicted a 98% chance a stock market crash will happen in the next six months.

Gary Shilling, one of Wall Street’s top economists, says the S&P Index could drop as low as 800, a 42% decline.

Jeffrey Gundlach, one of the world’s biggest bond fund managers and CEO of DoubleLine Capital, says the real damage is yet to come and an “ominous third phase” will “far exceed the damage of 2008.”

And Euro Pacific Capital CEO Peter Schiff, author of “The Real Crash: American’s Coming Bankruptcy,” warns, “I am 100% confident the crisis that we’re going to have will be much worse than the one we had in 2008.”

Even billion-dollar investor Warren Buffett is rumored to be preparing for a crash as well. The “Warren Buffett Indicator,” also known as the “Total Market Cap to GDP Ratio,” is breaching sell-alert status and a collapse may happen at any moment.

So with an inevitable crash looming, what are Main Street investors to do?

One option is to sell all your stocks and stuff your money under the mattress. Another option is to risk everything and ride out the storm.

But according to Sean Hyman, founder of Absolute Profits, there is a third option.

“There are specific sectors of the market that are all but guaranteed to perform well during the next few months,” Hyman explains. “Getting out of stocks now could be costly.”

How can Hyman be so sure?

He has access to a secret Wall Street calendar that has beat the overall market by 250% since 1968. This calendar simply lists 19 investments (based on sectors of the market) and 38 dates to buy and sell them — and by doing so, one could turn $1,000 into as much as $300,000 in a 10-year time frame.

Editor's Note: Sean Hyman Reveals His Secret Wall Street Calendar in This Controversial Video, Click Here

“But this calendar is just one part of my investment system,” Hyman adds. “I also have a Crash Alert System that is designed to warn investors before a major correction as well.”

(The Crash Alert System was actually programmed by one of the individuals who coded nuclear missile flight patterns during the Cold War, so that it could be as close to 100% accurate as possible.)

Hyman explains that if the market starts to plunge, the Crash Alert System will signal a sell alert warning investors to go to cash.

“You would have been able to completely avoid the 2000 and 2008 collapses if you were using this system based on our back-testing,” Hyman explains. “Imagine how much more money you would have if you had avoided those horrific sell-offs.”

One might think Hyman is being too confident, but he has proven himself correct in front of millions of people time and time again.

In a 2012 interview on Bloomberg Television, he correctly predicted that Best Buy would drop down to $11 a share and then it would rally back up to $40 a share over the next few months. The stock did exactly what he predicted.

Then, during a Fox Business interview with Gerri Willis in early 2013, Hyman forecast that the market would rally to new highs of 15,000 despite the massive sell-off that was haunting investors. The stock market almost immediately rebounded and hit his targets.

“A lot of people think I am lucky,” Hyman said. “But it has nothing to do with luck. It has everything to do with certain tools I use. Tools like the secret Wall Street calendar and my Crash Alert System.”

With more financial uncertainty than ever, thousands of people are flocking to Hyman for his guidance. He has over 114,000 subscribers to his monthly newsletter, and his investment videos have been seen millions of times.

In a recent video, Hyman not only reveals the secret Wall Street calendar, he also shows how his Crash Alert System works, so that anybody can follow in his footsteps (click here to watch it now).



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Frothy Market

Link: http://www.marketwatch.com/story/11-stock-charts-to-navigate-a-frothy-market-2014-05-28?mod=latestnewssocialflow&link=sfmw

Analyzing a Mutual Fund

There are a number of mutual funds and fund managers that have performed very well over both long-term and short-term horizons. 

All mutual funds have a stated investment mandate that specifies whether the fund will invest in large caps or small caps, and whether those companies exhibit growth or value characteristics.

It is assumed that the mutual fund manager will stick to the stated investment objective. 

It’s an excellent start to understand the mutual fund’s specific investment mandate, but there is more to fund performance that can only be exposed by digging a bit deeper into the fund’s portfolio over time.

Occasionally fund managers will drift towards certain sectors either because they have more experience within those sectors, or their particular strategy force them into certain industries. A dependence on a particular sector may leave a manager with limited possibilities if they have not broadened their investment net. 

To determine a fund’s sector weight, investors must compare the fund to its relevant indexes to determine where the fund manager increased or decreased their allocation to specific sectors relative to the index. 

This analysis will shed light on the manager’s exposure to specific indexes relative to the benchmark. 

The analysis can be as straightforward as listing the fund and relevant indexes side by side with a breakdown by sector. 

There are managers who have a top-down approach and others that have a bottom-up approach to stock-picking, 

Top-down indicates that a fund manager evaluates the economic environment to identify global trends and then determines which regions or sectors will benefit from these trends and will look for specific companies within those regions or sectors that are attractive. 

A bottom-up approach, a manager will filter the entire universe of companies based on certain criteria, such as valuation, earnings, capitalization, growth or a variety of combinations of these types of factors. A manager will then perform rigorous due diligence on those companies.

To determine whether a manager is actually adding any value to the mutual funds performance based on asset allocation or stock picking, an investor needs to complete an attribution analysis, which uncovers the impact of the manager’s investment decisions with regard to overall investment policy, asset allocation, security selection and activity. 

Attribution analysis can reveal that a manager has placed inaccurate bets on sectors but has picked the best performing stocks within each sector. From this example, this manager should have a bottom-up approach but if the manager’s mandate describes a top-down methodology, this might raise some red flags because we would have discovered that the fund manager has done an inadequate job of asset allocation. 

There are many other factors to consider when analyzing a mutual fund’s portfolio. 

By analyzing the sector weights of a fund and the manager’s attributions to performance, an investor can better understand the historical performance of the fund and how it should be used within a diversified portfolio of other funds. 

An investor can also break down the portfolio to provide valuable insight into a manager’s skill and further enhance the investor’s portfolio construction process. 

If at all possible, an investor would want a mix of superior allocators and first-class stock pickers, as well as fund managers with expertise in various sectors.

Link: http://www.equityscholar.com/library/analyzing-a-mutual-fund/

Value Investing World: Hussman Weekly Market Comment: The Journeys of Sisyphus

Value Investing World: Hussman Weekly Market Comment: The Journeys of Sisyphus: "The Journeys of Sisyphus
Link to: The Journeys of Sisyphus
As we discussed several months ago, that hope of succeeding rests on what economist J.K. Galbraith called “the extreme brevity of the financial memory.” Part of that brevity rests on ignoring the forest for the trees, and failing to consider movements further up the mountain in the context of how far the stone typically falls once it gets loose. It bears repeating that the average, run-of-the-mill bear market decline wipes out more than half of the preceding bull market advance, making the April 2010 S&P 500 level in the 1200’s a fairly pedestrian expectation for the index over the completion of the current market cycle. A decline of that extent wouldn’t bring valuations close to historical norms, and certainly not to levels that would historically represent “undervaluation.” But consider that a baseline expectation, and don’t be particularly surprised if the market loses closer to 38% - which is the average cyclical bear market loss during a secular bear market period. A market loss of about 50% would put historically reliable valuation metrics at their historical norms, though short-term rates near zero would seem inconsistent with a move to historically normal valuations with typical (~10% annual) expected total returns, absent other disruptions.
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SAC’s Michael Steinberg Sentenced to 3.5 Years for Insider Trading

SAC’s Michael Steinberg Sentenced to 3.5 Years for Insider Trading
May 16, 2014
by Jason M. Breslow

Michael Steinberg, once a top trader at the hedge fund SAC Capital Advisors, was sentenced to three-and-a-half years in prison and ordered to pay a $2 million fine on Friday for an insider-trading scheme that allegedly garnered him $1.8 million in illegal profits.

Steinberg, 42, is the most senior SAC employee to be convicted since the U.S. Attorney’s Office in Manhattan launched a vast probe into insider trading within the hedge fund industry. Since the start of the probe in 2009, eight SAC employees have either pleaded guilty or been convicted at trial.

Steinberg was convicted in December for using inside information to trade shares of Dell in 2008 and Nvidia in 2009. Prosecutors argued that Steinberg knowingly traded on illegal tips from Jon Horvath, a former analyst at SAC. Horvath, who pleaded guilty, testified at trial that Steinberg directed him to acquire “edgy, proprietary, market-moving information” for the firm.

In one e-mail, sent two days before Dell was set to report its 2008 second-quarter earnings, Horvath wrote to Steinberg with details about the computer company’s expenditures, gross margins and revenue. “I have a 2nd hand read from someone at the company,” Horvath wrote. “Please keep to yourself as obviously not well known.” Steinberg wrote back, “Yes normally we would never divulge data like this, so please be discreet.”

The government has argued that such behavior was commonplace at SAC, a firm that was once the envy of Wall Street for its consistently stellar returns. The hedge fund’s billionaire founder and namesake, Steven A. Cohen, has avoided criminal charges, but in November SAC as an institution pleaded guilty to insider trading violations as part of a record $1.8 billion settlement. The agreement came with a clause forcing the firm to shut down its business of managing money for outside investors. SAC has since rebranded itself Point72 Asset Management, a reference to the firm’s headquarters at 72 Cummings Point Road in Stamford, Conn.

The sentence is shorter than the 6.5 years sought by the government, and Judge Richard Sullivan, who called Steinberg “a good man,” allowed him to remain free on bail pending an appeal of the case. As The Wall Street Journal reported:

A federal appeals court in New York signaled last month that it was uncomfortable with some of the instructions Judge Sullivan gave to the jury that convicted two other hedge-fund managers. The judge gave the same instruction in Mr. Steinberg’s trial, and his lawyers are expected to file an appeal within days of his sentencing.

The government’s investigation into SAC was the focus of the recent FRONTLINE investigation, To Catch a Trader. You can watch the full film below:

SAC’s Michael Steinberg Sentenced to 3.5 Years for Insider Trading | To Catch a Trader | FRONTLINE | PBS: