U.S. markets had a nice bounce yesterday and they look poised for another bounce today, barring any hawkish comments from the Fed in today’s policy announcement. But all may not be fine and well as market internals have a real troubling look. The chart below shows the NYSE cumulative advance-decline line for stocks compared to the S&P 500. The advance-decline line measures market breadth. The YTD trading range of the headline indices may be masking underlying weakness in the market that is evident in the downtrend in the A/D line. Narrowing markets are often a sign that stocks are … [Read more...]
This Doesn’t Have an Encouraging Look
Copper is said to have a PhD in economics because it’s price tends to be correlated with global economic growth. Unless Dr. Copper has lost its relevance, there is reason to be concerned about global growth. The continuing rout in commodity prices has pushed copper below a key long-term support level. Technical analysts would tell you the next support level for copper is at least another 15% away from the current price. But copper isn’t the only indicator sending a signal of caution. Oil prices are in the tank. The media paints this as a supply story and there is no doubt an excess of … [Read more...]
Top Stocks this Earnings Season
In my last post, I referred to the quarterly earnings season that we are now in the thick of as a circus. And Boy has it lived up to that name. The overreaction of investors to quarterly results never ceases to astound. The main event this season (so far at least) has to be the Google earnings report, but Netflix came in a close second. Google investors had one of the greatest overreactions to a quarterly earnings report in the history of quarterly earnings reports. The company earned about $170 million more in the second quarter than analysts were expecting which is equal to about 0.85% of … [Read more...]
From One Circus to the Next
If the media reports are correct, the Greek Prime Minister Alexis Tsipras just agreed to the same deal that Greece’s euro-area creditors offered Greece before Tsipras abruptly demanded a referendum. The Greek people overwhelmingly voted to reject the bailout offer from creditors, but now Mr. Tsipras is apparently agreeing to what amounts to the same deal. So with that, the markets are telling us the Greek crisis is over—for now at least. For now, you say? Yup, for now could be until Sunday as euro-area parliaments still have to agree to the deal. But even if they do, we unfortunately … [Read more...]
A Short-Cut to the Global Investment Outlook
You can learn a lot about the world simply by observing. The same is true of the global investment landscape. Financial markets provide a short-cut to the global investment outlook. Share prices, for example, reflect the wisdom of millions of informed (some less so) investors with skin in the game. The crowd doesn’t always get it right (see China A-share market), but it is always a worthwhile exercise to listen to what the crowd is saying if only to know where your views differ. What is the crowd saying about the global investment outlook today? The graphic below charts the year-to-date … [Read more...]
The $2 million Apartment
Bloomberg reports that Manhattan apartment prices hit a record in the second quarter. The average sale price of a Manhattan apartment is a staggering $1.87 million. The average price of a luxury apartment is $8.18 million—a 13% increase over last year. Almost $2 million bucks for 1,200 square feet of living space—that’s more than 28X the median household income in Manhattan. Obviously the median household in Manhattan isn’t an apartment owner. Even for the folk who can scratch together a cool $375,000 for a 20% down payment, the monthly mortgage payment on the median Manhattan apartment is … [Read more...]
China Stocks Torch Investors
How does the saying go… if you play with fire, you are liable to get burned? Investors who made the mistake of chasing returns in China’s A-share market this spring just got torched. Over the course of about 10 trading days, two of China’s major stock market indices plunged into bear market territory with the more widely followed Shanghai Composite index only a few ticks away from a bear market. The question speculators now have to answer is whether or not the 20% pounding they just took in the A-share market is the start of a deeper bear market, or simply a correction on the way to higher … [Read more...]
Freeport McMoRan’s Oil Patch Tour
Warren Buffet once advised to buy into a business that any idiot can run, because sooner or later, one will. Harsh words from America’s favorite investing icon, but not far off base. I’m not sure if this proves Buffett’s point, but the management team at Freeport McMoRan Inc, just filed for an initial public offering of common stock in Freeport-McMoRan Oil & Gas. The same business Freeport’s management team acquired in 2012. Prior to the acquisition of the oil and gas business, Freeport was one of the largest pure-play producers of copper and gold. Many investors bought the stock for … [Read more...]
Economic Misfire
For as long as the economy has been crawling its way out of the last recession, economists and policymakers have been puzzled by the lackluster rate of economic growth. In past economic cycles, deeper recessions were usually followed by stronger recoveries. Coming out of prior recessions, growth rates of 4%, 5%, and even 7% were not uncommon. During this cycle, annual GDP growth hasn't broken 3.25% once. What explains the lackluster growth during this cycle? Aside from the many policy missteps that have held back growth, the chart below explains why the economy still hasn’t hit its … [Read more...]
3 Reasons Inflation Could Surprise
Investors and policymakers have been obsessed with the risk of deflation for so long that they may be missing the risk of higher inflation. The headline inflation numbers in the U.S. do in fact signal a deflationary impulse. Prices have contracted by 0.20% over the last twelve months, but the headline number is being depressed by lower gas prices and a stronger dollar. Neither factor will persist indefinitely. Services inflation, which is a more stable indicator of inflation, shows that the underlying trend of inflation is up. Trends in the labor market are also pointing toward higher … [Read more...]
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