Proof - “Deflation” is taking place at the Fed!
In your opinion, does the Fed prefer “Inflation or Deflation?” The picture above proves that Deflation is taking place at the Fed.
On a more serious note regarding the Inflation/Deflation theme, many feel the Fed’s policies will lead to strong inflation. From a stock market persective, inflation is taking place, as the Dow and S&P 500 are at/near all-time highs.
Another asset class can’t say the same thing…see chart below
The Thompson Reuters Commodity Index a few months ago broke below a 13-year support line (left chart), then rallied to kiss old support as resistance and has fallen hard since.
On a shorter term basis (right chart) the index could be breaking support of this bearish descending triangle pattern. ”Measured move” of this bearish descending triangle suggest much lower prices.
I suspect that the Fed would rather fight excess inflation over deflation. In reality, none of has much control over inflation/deflation, other than we can make adjustments to our portfolios.
A further breakdown of support in the right chart would suggest that lower prices in commodities will be the trend. Understanding this trend could be important as Gold & Silver could be breaking 13-year support and Crude Oil is testing a 5-year support line.
See more of our research here
Louise Yamada is getting bearish crude prices…
In our Outlook 2014 we asked “whether technically, Oil may have entered another wide extended trading range (a future C? consolidation), not unlike “B”. Therefore, prices may prove more erratic than trending, and thus more challenging, over the years ahead.
The potential for prices to fall below the current trading range is a real possibility, even back toward 60 or 40 (steep drops as occurred
during the 24-year consolidation “B” when Oil moved in a wide price range between approximately 12 and 40)”.
Chart Source: Bloomberg and YLAdvisors
Today’s energy surplus not only may allow us energy independence, but also lower the price considerably over many years, understanding there will be hiccups that carry price on occasional rallies. Our electricity cost is now the second least expensive globally. We also have been impressed with the growth globally of alternative energy sources which are gaining fruition here but even more in Europe.
Last month we contemplated alternative energy developments globally as a contributor to lower oil prices and apparently Germany is planning to have 60% of its energy green by 2020.
One simple technological advance is that of LED lighting. Worldwide, lighting alone is responsible for 19% of total purchased electricity. LED usage is growing, and relative to Oil, its usage should represent
$250 Billion in energy savings by 2030!
But perhaps the falling price of Oil is also suggesting less economic productivity globally with all the wars in progress. Will the bottom line of many corporations be affected negatively represent a plus?
Our relative strength on the Energy sector suggests the potential for a structural underperformance for energy which could reflect developing weakness in Oil the commodity.
Another observation is that over the past few years many major banks have cut their commodity desks and proprietary trading —- less speculation —- which could be a factor in the more placid price of commodities.
Source: LY ADVISORS: Technical Perspectives September 2014, published August 30, 2014. This research is proprietary to LY Advisors.
Percentage of Stocks in a Bear Market: Nasdaq vs. S&P 100
Yesterday, Bloomberg published a provocative article indicating that 47% of Nasdaq stocks were currently in bear markets, i.e., at least 20% off of their 52-week high. As stats wonks, we are attracted to these types of studies (and a little jealous when someone else discovers them). Thus, we were immediately intrigued by the article and the data point, particularly as, on the surface, it appeared to lend evidence to the thinning market meme that we have been describing.
The first step was to run the test to independently verify the 47% figure. We did so and found around 45% of Nasdaq stocks were down 20% from their 52-week high — close enough. Suffice it to say that sounds like an alarmingly high number.
That leads us to the second step: determining context. 47% sounds high but is it really? Well, we ran the test since the beginning of the year and as it turns out, the percentage has been above 40% for most of the time since March. So it may be high, but it isn’t an extremely recent development. If it is one of those divergences that we’ve observed so often lately, it is apparently another one that can persist for some time before causing real damage to the major averages.
Speaking of major averages, one of the takeaways from this study is how the averages can mask broad weakness throughout the market. Due naturally to their high weighting, the biggest stocks by market cap can keep the averages afloat, or rising, if they are doing well — even as much of the broad market is mired in a bear market.
More evidence of that effect is seen from the other series on the chart. Measuring the percentage of stocks in the S&P 100 (the very largest companies) that are in a bear market, we get exactly 1%, i.e., 1 stock (it is General Motors, if you are wondering). That is testament to the strength of the large caps and the resilience of the major averages. It also speaks to another takeaway from this study: stick with the relative strength leaders.
Lastly, to truly determine the significance and context of this statistic, we would have to view its historical data. In the article, Bloomberg mentioned that the number of Nasdaq stocks in a bear market in October 2007 was “about 45%”. However, since we do not have data with timely constituent changes for the Nasdaq going back several years, we cannot generate historical numbers. We could theoretically reproduce it by rebuilding the Nasdaq week-by-week, but that would be too time-consuming a task for us. It would be great if anyone had the data and could share the figures or chart so that we could get a true historical perspective.
More from Dana Lyons, JLFMI and My401kPro.
By Bernardo Hernandez, Vice President, Flickr
Photography has the power to fascinate, inspire, and even change the way we see and understand the world around us. At Flickr, we celebrate this along with our community of users. Today, we’re excited to introduce the first annual Flickr 20under20 - an initiative that celebrates 20 of the world’s most extraordinary young photographers on Flickr, who are under the age of 20.
Millions of photographers share their inspiration with the world every day on Flickr, and we wanted to show our support by finding and promoting the future’s brightest young photography talent. The 20under20 were selected from Flickr’s young photography community by a panel of influential Flickr photographers — Lou Nobel, Cuba Gallery, and Rosie Hardy — and myself, based on their creativity, technical talent, and overall strength of portfolio.
Collection of Photographs By the 20under20
We’ll be showcasing the work of these 20 inspirational photographers throughout the year on Yahoo and Flickr. Their work will also be exhibited at a gala event on October 1 at Milk Studios in New York City, curated by Vogue Photography Director, Ivan Shaw. As part of our 20under20 initiative, Shaw chose photographer Laurence Philomene to receive the 20under20 Curator’s Choice Award. Shaw felt her photography offered a unique and fresh perspective, a window into a world he hadn’t seen before. As part of the award, he will mentor Philomene for a year.
Collection of Photographs by Laurence Philomene
Visit flickr.com/20under20 to learn more about the 20 photographers who have been chosen for this honor. Also tweet to vote for the photographer you think should receive the Audience Choice Award. Using #Flickr20u20 and the photographer’s name, vote for the #mostcreative, #besttechnique, and #strongestportfolio. These winners will be announced at the gala on October 1. We’d also encourage you to submit nominations for next year’s Flickr 20under20 by emailing their Flickr name or URL to firstname.lastname@example.org.
And for all you young photographers out there, keep inspiring us with your photos!
5 Facts About Minecraft and Why Microsoft Paid $2.5 Billion For It
It was officially announced early Monday morning that Microsoft agreed to acquire Minecraft developer, Mojang, for $2.5 billion. At first glance, many may find themselves blown away by such a huge purchase. In the eyes of some critics, it could even conjure up headlines reminiscent of the 2000 tech bubble. But, just maybe, Minecraft was actually bought at an incredible value. Here are 5 stunning facts about its success:
1.) More than 12 million copies of Minecraft have been sold on the Xbox 360, which Microsoft already develops and owns.
2.) More than 2 billion hours of Minecraft have been played on the Xbox 360.
3.) Mojang grossed more than $360 million in revenue last year alone. The majority of that coming from Minecraft.
4.) Minecraft is played on different servers running around the world. Some gamers estimate that there are more than 30,000 Minecraft servers in existence. Keep in mind, Microsoft’s new CEO, Satya Nadella, has an extensive background in online services, specifically the Server and Tools Business. Now, imagine the things he could have in mind.
5.) Fans have proven to be extremely loyal. More than 90% of all gamers who purchased Minecraft on the PC have returned over the last 12 months.
In short, Microsoft had several valid reasons to purchase Minecraft. It is profitable and growing. It also has a huge fanbase on the PC and Xbox 360. But, perhaps even more intriguing, is the simple fact that Minecraft is rooted on servers everywhere. And Microsoft’s CEO is master in that realm with years of experience.
How The First 6 iPhone Releases Impacted Apple's Stock Price
Apple’s big event is scheduled for Tuesday, September 9. It starts at 10 AM PT in Cupertino, and the major announcement will be centered around the release of the iPhone 6. What new capabilities will it have? How will it look?
Last quarter, the iPhone generated nearly $20 billion in revenue for Apple. That is phenomenal. It generates more revenue per quarter than all of Amazon, McDonald’s and Google. Yes, you heard that right. The iPhone alone grosses more than every single item sold on Amazon.
The chart above shows how Apple's stock price has reacted immediately following several of the major iPhone releases.
Historically, the short-term impact has been fairly random. One of the biggest drops happened after the release of the iPhone 3G. Apple fell about 7%. One of the biggest gains came after the iPhone 4s in 2011. Following that announcement, Apple climbed as much as 10%.
Perhaps Apple is a stock meant to be held through iPhone announcements and not speculated on or traded. There is some excellent data to support this notion. The 6‒month average return on Apple following an iPhone announcement is 23%. The 12‒month average return is 25%. That data comes from an earlier segment on Yahoo’s Talking Numbers.
Everyone will be watching Apple tomorrow. Most of the focus will be on the iPhone 6 and its specs. But it will be equally interesting to see how the stock reacts, and if the historical averages hold true.
Jeff Kilburg is doing ridiculous work self-producing these videos live from the CME flloor -
P/E Ratios in S&P500 are Saying Something
Despite the fact we have seen a sleepy September thus far, I think investors need to start doing some homework. Looking at the P/E Ratio of the S&P 500 should be a great starting point as Traders globally continue to scan the horizons for this so called “Correction”.
We have become quite accustomed to new All-Time highs in the Stock Market recently. Since 2012, the S&P 500 has printed new All-Time highs 77 different times…thanks to the Fed expanding their balance sheet to a historic high of nearly $5T (Yes 5 Trillion!).
In normal times it is healthy for the top 50 stocks in the S&P 500 to be viewed as well as valued quite differently. Again normally, this specific group of stocks tends to deviate very far away from the average P/E Ratio of the entire S&P 500. This aggresive piling into of these top 50 stocks has created one of the narrowest deviations from the average (or mean) in history. Currently and unlike normal times, these top 50 stocks have only deviated away from the average by 22%. What does this mean? Well, it means investors are tending to flock together and inadvertently investing in the same stocks. Our History books reveals that this is not wise. And as we all remember back to 2008 when investors all piled in to a similar trade, the exit to the door can be really ugly! (Cue the Youtube Seinfeld video of George Costanza trampling over little kids at a Birthday party to get to the EXIT when he smells smoke)
Thus, I believe it is time that we all hit the books and realize that the History books will indeed reflect this period of time as unlike no other time in the investing world. Additionally, it may be time to break out (@JeffMacke shout-out) a fresh notebook to jot down stocks that you may want to add to your book during the coming fire.
As my grandfather, Papa Frank, always used to say…”Hit those books & remember, knowledge is power!”
Today’s widely anticipated employment report (NFP) reaffirmed that growth remains positive but tepid. 142,000 jobs were added in August, well off the expected print of 220,000 new jobs.
Was this “miss” really a surprise? No.
This month’s print follows those of 84,000 in December and 288,000 in June. Moving between extremes like these is nothing new: it has been a pattern during every bull market. Since 2004, every NFP print near or over 300,000 has been followed by one near or under 100,000 (circles).
We should also note that a “miss” of 80,000 jobs is equal to 0.05% of the US workforce. Assuming greater forecasting precision is folly.
The largely ignored bigger picture is more instructive. In the past 12 months, NFP has averaged 207,000. That is close to the middle of the range in the chart above.
Annual growth in employment in August was 1.8%. As you can see in the chart below, the monthly prints shown above have been noise within a growth trend below 2% since the start of 2012. It wasn’t much different in the 2003-07 bull market either. Given this history, investors should be careful assuming a faster rate of growth in employment.
Despite expectations that wages are set to accelerate, growth remains subdued. In August, wages grew 2.1% yoy. That too is in the middle of the past 5 year’s range.
There’s nothing bearish in the latest data - in fact, it fits the recent pattern perfectly - but it should moderate expectations that economic growth is accelerating and that inflation will imminently turn higher. CPI and PCE are both below 2%. For some reason, many mistrust these data sources. For those, MIT publishes an independent price index (called the billion prices index). It tracks both CPI and PCE very closely and also shows little pressure on prices.
There’s also an unfounded belief that the current growth in employment, wages and demand is surprisingly weak. True, all of these are slower than during recent post-recession recoveries. But 2008-09 was not a conventional recession led by a wage-price spiral. It was caused by the biggest financial crisis since the 1930s. Wealth equal to a year’s worth of GDP was lost. Compared to other post-financial crises, the current recovery in the US is much better than average. It might seem slow, but this was entirely expected.
For a more complete summary of the latest macro data, please click here.
The Week Ahead
SPY opened at 201.0 on Tuesday and closed at just 201.1 on Friday. Trading has been in a very tight range.
From the August low, SPY rose nearly 5% in two weeks. In the following two weeks, it has risen less than 1%. But what is remarkable is this: since Friday August 22, more than 100% of the gain in SPY has come from overnight trading. SPY is up by $1.90 in these past two weeks, but overnight gaps account for net gains of $2.10. Daytime cash hours account for a loss of $0.20.
This is a pattern reminiscent of late March before April spilled lower.
Tick is similar. Ticks over 1000 are outnumbered by ticks under -1000 by a ratio of more than 1:10 in the past two weeks. Buying moves slowly higher, in measured moves, but selling has been on offer. This is usually not constructive.
Still, the number of exchanges making new highs this week is impressive. SPX, NDX, DJIA, FTSE, Shanghai, Hong Kong, Australia and EEM all made new 2014 highs. Nikkei made a 7 month high. France made a two month high and Germany a one month high.
So, what happens next?
The most importantly technical feature for SPY is that it closed above its 5-dma for 18 days in row. In the past 5 years, that has only happened once before (June 2013). That type of strength, as we have said, rarely marks the end of an uptrend. Momentum should carry SPY higher.
Friday’s low was also the first touch of its 13-ema since the August low. In the past, there has been at least some follow through higher (green arrows).
The upside may not be great. Note the areas shaded in yellow above. Price chopped for a week or more and resolved higher but several didn’t make much additional gains. Note RSI (top panel); it is diverging, most resembling late July 2013 before a test of the 50-dma in August.
Also note the top trend line (dashed blue) that SPY is up against and that has impeded upside since July. There is room up to 202 next week, equal to weekly R1.
On the downside, SPY has tested support at 199.5 several times, including on Friday. A quick return to that level likely breaks to 199 and fills an open gap. Just below is 198.5, a multiple top in July and also next week’s S2. That should hold any significant weakness.
The weakest index is still RUT, and it remains a useful tell for overall market health. We continue to focus on the 1160 level as the key to trend. So long as this holds, the bias should remain higher. This was successfully tested on Friday. Here, like SPY, note the divergence in RSI.
The big news this week is the ECB cut rates and announced a stimulus program of upwards of $1 trillion. This sent the Euro down and the dollar higher. What other impact will this have?
We have detailed a trade in the CRB (post). A higher dollar (top panel) is clearly bearish for commodities (bottom panel; chart from Stock Charts).
Remarkably, the CRB did not make a lower low this week and remains above a larger support level. It looks bad, but its not dead yet.
A higher dollar is probably not bearish for US treasuries. In the past, with one main exception (red arrows), dollar buying has led to inflows into treasuries, and vice versa (green arrows).
To the extent US yields have been driven lower by competing yields overseas, the ECBs actions should also keep US yields low (provided European yields do not rise, of course). While the rise in yields this week seems large, the trend hasn’t yet changed.
Seasonality turns mostly negative for the next several weeks.
Our weekly summary table follows:
Cartoon: Yellen teaches Draghi how to print Euros
The cartoon of the week comes to us via @NorthmanTrader on Twitter.
September! The most tasteful month in the calendar, and time again for Tumblr to fling a covey of bloggers at New York Fashion Week. Beginning today and starring:
Photo by itsmashaphoto
Well, this is not really Finance, but its so insanely cool what Tumblr is doing here that we couldn’t resist sharing.