About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Saturday, February 24, 2018

Commodity Price Index

The last bull market in commodities ran from the end of 2001 through early 2008. Paced by very
rapid production growth in China, inventory hoarding and intense financial speculation, the CRB
rose from a low of 170 to the 470 level before collapsing over the balance of 2008. The market
staged a strong partial recovery over the 2009 - 11 period, reflecting a global economic advance
from deep recession, a massive fiscal stimulus program by China, and speculative inventory
pipeline rebuilding and the return of intense financial speculation. But, the bear market endured
until early 2016. Over 2011 - 2016, global economic growth was modest, inventories were
slowly unwound, and speculators turned strongly to financial assets.

Materials production capacity expanded rapidly over the decade through 2010, and more recent demand has not been strong enough to take up the slack. Commodities pricing has also been adversely affected by the growth of synthetics, recyclables and new production and and
consumption technologies.

For many years, there was price support for the CRB around the 170 -200 area, but a reading of
200 on the index has now become resistance!  Weekly CRB

As seen, the market has been recovering from its multi-year low of around 160 set in early 2016.
Faster global economic growth over the past couple years has not been sufficient to set off a strong
sustainable rally in the CRB. From a longer term perspective, the CRB is still in a bear market.
The current extended base looks promising, but the index has not strengthened sufficiently to
challenge longer run trend resistance. To attract stronger trader and investor interest, the CRB
needs to break above the 200 level and challenge that first significant hurdle at 230. The CRB
is at huge discounts to the stock and bond market price indices and would attract strong interest
if there is finally a stronger positive response to a swifter global economy.

Tuesday, February 20, 2018

Gold Price

My long term view on the gold price remains that gold will  primarily stay a range bound
trading vehicle until investors become more confident that the global economy is transitioning
from a deflation prone period into an inflationary era when global plant and service operating
rates are more easily challenged by rising world economic demand. A tighter operating
environment tends to foster stronger wage growth and stronger competition for materials and
commercial resources. The very deep global recession and modest economic recovery that
has come along in its wake has left a legacy of excess production capacity and a trend of volatile
but decelerating inflation.

Although the cyclical fundamentals for the gold price have been positive since early 2016, and
there has been a rather mild cyclical acceleration of inflation pressure, it has not apparently
been strong enough to support a sustained rise in the price of gold. Since gold began to recover
in early 2016, the interim price lows have trended higher, but clear longer term price resistance
has formed in the 1375 - 1400 area.  Weekly Gold Price

The gold price is inherently volatile and price action can far outstrip a fundamental approach
to trying to determine a reasonable price for the metal. In recent years speculative surges have
been contained even though gold has fared decently off its 2016 low. The bottom panel of the
chart shows that gold's price has been deteriorating relative to the stock market for a quite a
while. That could change if further economic growth brings increased inflation pressure going

Sunday, February 18, 2018

Stock Market -- This Is A Little Odd

While folks debate the near term future of the market, I content myself with an oddity in the
market internals. The TRIN measures the amount of selling pressure in the market. A high TRIN
signals heavy selling pressure and a low TRIN signals light selling pressure (low volume per issue
sold). During the extended period of market weakness over the latter part of 2015, the 13 week
TRIN reached a high of 1.6, indicating the accumulation of heavy selling pressure.  Weekly TRIN

Notice that despite the dramatic sell-off over the earlier part of February, the 13 week TRIN has
continued to trend down to low levels, and since it's now below 1.00, suggests the continuation of
accumulated net buying pressure through 2018.

Saturday, February 10, 2018

SPX -- Update

According to my cyclical valuation work, I have the SPX as fairly valued at 2610 for 2018 at 2720
through mid-2019. The modest increase in valuation product into next year reflects another year
of positive earnings direction offset by a reduction in the market's p/e ratio to reflect a higher
inflation rate of 3% by mid-2019. Although the inflation pressure gauges currently remain in
rather humble uptrends, that should change as the large fiscal stimulus programs kick in to boost
an already maturing economic expansion. there could very well be an interim period starting in
a month or two when the economy temporarily slows, and market players  run-up stock prices in
the erroneous assumption that "Goldilocks" has returned to preside over a period of more modest
growth and continuing low inflation. If such a strong rally occurs, there might be a classic
"get out " rally to reduce equity exposure.

Despite the current correction, the stock market remains strongly overbought on a long term
basis and mildly overdone in the intermediate term. The main trend of the market remains in
bullish mode with intermediate trend supports around 2600 on the SPX. Longer term trend
support stand around 2500.  SPX Weekly

Do not ask me where the market is going over the couple of weeks. However, by my conservative
trading discipline, I would give the market a hard look for a long side fling if the stochastic
measure (bottom panel of the chart) drops inside the 20 level.

Monday, February 05, 2018

Stock Market -- Historic Overbought Deflates

Yeah, well it was a market that became one of the most overbought in history. The best the bulls
could do was express some edginess the weekend before Groundhog Day (Feb.2). Little did folks
know that Punxatawny Phil  down in Pa. was not only forecasting six more weeks of winter, but
an Eagles win in the super bowl as well as a blowout of the parabolic move in the SPX that we
all witnessed in. Jan.'18. Easy come, easy go.

Now the market is assuredly on the oversold side and we'll just have to see whether the boyz can
rally around the fact that the SPX closed well off its low today or whether exhaustion has not fully
set in and there is more to go on the downside in the days ahead.

Several weeks back, I opined that if I stretched it, there was a case for the SPX to trade around
the 2610 level in 2018. That speculation immediately looked foolish as the market rocketed
above 2870 by the end of Jan. The rapid decline in the SPX to just below 2650 makes the 2610
estimate of fair value look less foolish.  SPX Daily

Market players are going to have to decide whether the prospect of higher business profits this
year will also include faster inflation and higher interest rates and what consideration of the
latter factors might do to their expectation for the SPX p/e ratio. I think it is fair to say that
most investors did not envisage crossing the p/e challenge bridge until well later in the year.
These issues may fully occupy investors if they keep their blinders on.

I happen to be entertaining a darker vision for the near term future. Not only is the US Gov't.
barely functioning, but I suspect Trump may consider some politically dangerous maneuvers
if the Mueller investigation closes in on him and his family especially. I have some fears here
involving challenges to our constitution in this era of sharp political division and given how
I view The Donald's history, I do not regard them as baseless. I also do not know whether
the serious misbehavior we see underway in Washington is bothering the market already and,
I do not know if the market will grow more troubled as matters get more heated as the Mueller
investigation proceeds. Let each of you decide how much we should pay attention to this
sad spectacle of America in worsening political conflict.

Friday, January 26, 2018

Stock Market -- More Amber Lights

As the SPX continues to surpass generational overbought records, I have a couple of more
signals to keep in mind. The SPX is now trading at a 13.4% premium to its 40 wk. moving
average. This is not a record, but history shows that when the market exceeds its 40 wk. m/a
by more than 10%, the odds are only about 1in 4 that the market will make good further progress
over the next six months or so. This signal does not imply a bear market will be coming along,
but a correction of substance is certainly not out of the question. Also, with a powerful run-up
in place, the intermediate and longer term price momentum indicators (ROC% below) are
getting extended. They also portend but do not fore-ordain a discontinuation of momentum
uptrends ahead.  SPX Weekly

The SPX has also turned parabolic in this powerful rally. It has not and need not complete
its move, but for a long term veteran of the markets, such levitation is absolutely fascinating.
I have done markets bubble measurement over the years, and it is very hard to spot one in the
early stages. The trajectory up for the SPX is a bubble trajectory, but the SPX would have to
reach 3300 this year and, perhaps, 4100 in 2019 to qualify as a fully blown market bubble.
Bubble talk does not scare many players anymore because of the idea of how much money can
be made during the flight higher. Moreover, money managers can lose accounts quickly if
they do not play the bubble. That's called career risk, and it surfaced broadly in 2000. It would
be odd indeed to have a market bubble so soon after the 1996 - 2000 event, but these are
loopy times for the US.

If the market takes a holiday for a couple of weeks just ahead, but then resumes a its strong
trend higher, central bankers should start to feel the heat to tamp down the advance. Greenspan
warned about the last bubble in late 1996, then quieted down and wound up as a drum major
leading it higher.

Finally, do not forget The Donald. He has fucked up more than party with his peculiar


Wednesday, January 24, 2018

US Dollar

I have been bullish on the dollar since the end of the deep recession of 2008-9. The long term view
was that the dollar could rise from the deeply depressed low 70s level back then to the 100 level
by 2020. I did not posit faster economic growth than the world could muster, but that the US
balance of trade would gradually improve reflecting increasing fuel efficiency, rising domestic
hydrocarbon production and a continued slowing of real consumer spending growth on the basis
of less favorable demographics. The rise in the dollar up to the 105 level by the end of 2016
represented a considerable overshoot of my projection. $USD Daily

Slow global economic growth in the intervening years led to a contraction of global trade and
favored the dollar by too large a margin. The sharp decline in the value of the dollar since the end
of 2016 reflects stronger global economic performance, stronger trade, and some deterioration of
the US trade balance. In addition, the dollar was heavily overbought by the end of 2016.

The chart reveals that the dollar sits well above longer term technical support, and it is tempting
to extend the dollar's downtrend line significantly further in the months ahead. Since the end of
fixed exchange rates way back when in the 1970s, I have often been been surprised by the strong
volatility of the dollar and the other major currencies, so far be it from me to argue that the
dollar is about to bottom out.

In my view, the dollar has dropped into a  reasonable area just below the 90 level, and with export
sales rising at a reasonable rate, I am reluctant to become too bearish now.