One Year To Nowhere

[OriZ 3,157]

And this week's market commentary which is pretty similar:

Several weeks ago, we shifted from a rather neutral near-term stock market view, to a hard-negative outlook, based on fresh deterioration in various trend-following components within our broad measures of market action. From a cyclical perspective, the stock market has effectively gone nowhere since mid-2014 (with zero total return on the broad NYSE Composite since then). The past two years can be characterized less as an ongoing bull market than as the extended top-formation of the third speculative episode since 2000, the third most extreme equity market bubble in history (next to 1929 and 2000), and the most extreme point of overvaluation in history across the broad cross-section of individual stocks and asset classes.

I’ve discussed nearly every detail of our present concerns with charts, data, and analysis in dozens of recent weekly comments. The chart below is a reminder that our estimates for the prospective 10-12 year return on a conventional portfolio mix of stocks, bonds, and money market instruments have never been lower. This poor long-term outlook is also joined by immediate near-term concerns. We currently estimate flat or negative prospective return/risk profiles across virtually every major asset class, including domestic equities, international equities (which despite better relative valuations, still tend to have a beta of roughly 1.0 when U.S. markets decline), Treasury bonds, corporate bonds, junk bonds, utilities, and even precious metals shares (which despite reasonable long-term valuations are facing sufficient near-term headwinds to keep us roughly neutral).

We don’t expect the current situation to end well for investors who insist on taking larger investment exposures than they’re actually willing to hold, with discipline, through a period of severe market losses. From present valuation extremes, a 40-55% market loss would represent a fairly run-of-the-mill resolution to the current market cycle; a decline that would take valuations only to the high-end of the range they’ve visited or breached over the completion of every market cycle in history. By the completion of the current cycle, I expect over $10 trillion of what investors count as paper “wealth” in U.S. equities to disappear without a trace.

Keep in mind that what investors count as “wealth” in financial assets doesn’t “go” somewhere else during a market decline. It simply vanishes. Market capitalization equals price times the number of shares outstanding. If even one share changes hands at a lower price, market capitalization falls by the change in price times the number of shares outstanding. If a dentist in Poughkeepsie sells a single share of Apple stock, at a price that’s just a dime lower than the previous price, $63 billion of paper “wealth” is instantly wiped out of U.S. stock market capitalization. Every security that’s issued has to be held by someone until that security is retired. It’s just that the owners change. The actual cumulative economic wealth embodied in a security is the stream of future cash flows it will deliver to its holders over time, and even that stream of cash flows counts as a liability of the issuer.

Both investors and policy makers would do well to understand that when one nets out all of the assets and liabilities in the economy, the only true wealth of a society consists of its stock of real private investment (e.g. housing, capital goods, factories), real public investment (e.g. infrastructure), intangible intellectual capital (e.g. education, inventions, organizational knowledge and systems), and its endowment of basic resources (e.g. land, energy, water). In an open economy, one would include net claims on foreigners (negative in the U.S. case).

So contrary to the idea that Fed-induced yield-seeking speculation has created “wealth,” the fact is that monetary policy has done little other than to distort the financial markets and encourage repeated cycles of malinvestment and collapse. It’s misguided to imagine that the gap between the future consumption needs of an aging population and the future output of a productivity-challenged economy can be addressed by central banks through greater purchases of riskier assets or “helicopter money” placements of purchasing power in the hands of spenders, as if speculation generates economic productivity or fiscal policy is run by central banks rather than Congress. No. The only way to close the gap is through policies that encourage productive real investment at every level of the economy, rather than fostering pointless financial speculation. Every day that central banks hold out the false hope of a paper solution is a day that chips away at the productive foundations of our economy.

Passive returns look glorious in the rear-view mirror precisely because Fed-induced yield-seeking speculation has driven nearly every asset class to rich or obscene valuations in recent years. But investors should understand that risky securities do not, over time, persist without risk premiums. Indeed, neither aggressive Fed easing nor low interest rates has historically supported stocks during periods when, for whatever reason, investor preferences shift toward risk-aversion. This lesson should have been drawn from the 2000-2002 and 2007-2009 collapses. The same lesson is likely to be taught again shortly, as we infer increasing risk-aversion among investors based on deteriorating uniformity and increasing dispersion across market internals.

Over the completion of the current market cycle, prospective returns are likely to spike toward more normal levels, which is another way of saying that security prices are likely to plunge. Given the record leverage that central banks have encouraged across governments, corporations, and financial institutions (particularly in Europe), it’s likely that economic and credit events will figure high on the list of catalysts. But historically, the best way to anticipate market weakness is not to insist on identifying the “catalyst” for such losses in advance (they are almost always identified in hindsight), but instead, by focusing on the prevailing and observable combination of valuations, market action, and related factors. Our outlook will change as that observable evidence does.

At present, on a blended horizon of 2-weeks to 18-months, our estimate of the prospective market return/risk profile for stocks is in the most negative 2% of all historical periods. The chart below shows the cumulative total return of the S&P 500 since 1940 in periods that fall into the lowest quintile. Together, these periods capture a cumulative 97% market loss, which is another way of saying that the other 80% of periods capture a cumulative S&P 500 total return about 30 times the cumulative total return of the passive index itself. The chart is on log scale, so that equal percentage movements cover the same vertical distance. The chart reflects the adaptation we introduced in mid-2014 (see the Box in The Next Big Short for the full narrative), lest investors are tempted to imagine that “this time is different” to a greater degree than is actually consistent with historical data.

Notice the little cluster of churning movement in the lower right of the chart. That’s market behavior in recent quarters, including the selloff early this year. The whole cluster is quite small relative to the larger losses that are characteristic of this set of return/risk profiles. From that perspective, the churning we’ve seen since mid-2014 is likely to be remembered as the calm before the storm. We saw the same sort of churning prior to the 2000 and 2007 peaks, which was memorably frustrating before the market collapsed. The combination of small “churning” movements coupled with large, steep declines reflects the “unpleasant skew” I’ve often discussed in relation to similar conditions. The single most likely outcome in any particular week is actually a small gain, but those gains are ultimately overwhelmed by abrupt, steep, and nearly untethered vertical losses, which investors experience as air-pockets, free-falls, and crashes.

I believe that I’ve been sufficiently clear about the evidence that drives our concerns, and that I’ve appropriately recognized and adapted our own challenges during the speculative half-cycle since 2009. Still, in more than three decades as a professional investor, I’ve found that there’s nothing like the completion of a market cycle to drive home the point that a disciplined focus on the market return/risk profile is essential, and that “this time” is never as “different” as Wall Street encourages investors to imagine. As a fully-leveraged “lonely raging bull” in the early 1990’s, I found it nearly impossible to convince investors that market prospects were positive, as they imagined that the “Bush recession” would never end. In 2000 and again in 2007, it was nearly impossible to convince investors of the speculative extremes and downside risks of markets where the “old rules” didn’t seem to apply. Once a market cycle is completed, everything seems obvious in hindsight. Soon enough, investors will wonder why they didn’t consider the extreme risks of the current environment to be just as obvious.

https://www.hussmanfunds.com/wmc/wmc161017.htm

[OriZ 3,157]

“The recent collapse is the climax, but not the end, of an exceptionally long, extensive and violent period of inflation in security prices and national, even world-wide, speculative fever. This is the longest period of practically uninterrupted rise in security prices in our history... The psychological illusion upon which it is based, though not essentially new, has been stronger and more widespread than has ever been the case in this country in the past. This illusion is summed up in the phrase ‘the new era.’ The phrase itself is not new. Every period of speculation rediscovers it... During every preceding period of stock speculation and subsequent collapse business conditions have been discussed in the same unrealistic fashion as in recent years. There has been the same widespread idea that in some miraculous way, endlessly elaborated but never actually defined, the fundamental conditions and requirements of progress and prosperity have changed, that old economic principles have been abrogated... and that the expansion of credit can have no end.”

The Business Week, November 2, 1929

“The market will not go on a speculative rampage without some rationalization. But during any future boom some newly rediscovered virtuosity of the free enterprise system will be cited. It will be pointed out that people are justified in paying the present prices - indeed, almost any price - to have an equity position in the system. The newspapers, some of them, will speak harshly of those who think action might be in order. They will be called men of little faith.”

John Kenneth Galbraith, The Great Crash, 1955

“The failure of the general market to decline during the past year despite its obvious vulnerability, as well as the emergence of new investment characteristics, has caused investors to believe that the U.S. has entered a new investment era to which the old guidelines no longer apply. Many have now come to believe that market risk is no longer a realistic consideration, while the risk of being underinvested or in cash and missing opportunities exceeds any other.”

Barron’s Magazine, February 3, 1969.

The S&P 500 had already started a bear market a few weeks earlier, which would take stocks down by more than one-third over the next 18 months. The S&P 500 Index would stand below its 1968 peak even 14 years later (with a real average annual total return of -3.4%, after inflation, over that period).

“Old ways of valuing stocks are outdated. A technological revolution has created opportunities for continued low inflation, expanding profits and rising productivity. Thanks to these factors, the United States may be able to enjoy an extended period of expanding stock prices. Jumping out now would leave you poorer than you might become if you have some faith.”

Los Angeles Times, May 11, 1999

In early 2000, the most reliable valuation measures we identify had reached extremes previously seen only at the 1929 peak, and were well beyond lesser extremes such as 1937, 1969, and 1972. At the time, I observed “the issue is no longer whether the current market resembles those preceding the 1929, 1969-70, 1973-74 and 1987 crashes. The issue is only - are conditions like October of 1929, or more like April? If the latter, then over the short-term, arrogant imprudence will continue to be mistaken for enlightened genius, while studied restraint will be mistaken for stubborn foolishness. The difficult part of all this is the short term. I have no answer for that, except that in each prior instance, every scrap of short term gain was wiped out in the eventual downturn. Let’s not be shy: regardless of short-term action, we ultimately expect the S&P 500 to fall by more than half, and the Nasdaq by two-thirds. Don’t scoff without reviewing history first.”

As it happened, from March 2000 to October 2002, the S&P lost half of its value and the Nasdaq 100 lost 83%. In the 7 years from the 2000 peak to the 2007 market peak, the S&P 500 achieved an average annual total return of just 2.1%. In the 9 years following the 2000 peak, the S&P 500 not only lost all of its interim gains, but also fell -48% below that 2000 peak on a total return basis. It was not until August 2012 that the S&P 500 recovered to a zero total return as measured from the March 2000 peak, taking until April 2013 for the S&P 500 to manage a positive real total return after inflation. It has required the third speculative episode in 16 years for the S&P 500 to claw out even a 4% average annual total return from the 2000 peak.

Unfortunately, given current valuation extremes, we fully expect the entire total return of the S&P 500 since 2000 to be wiped out over the completion of the present market cycle. That loss is likely to be an interim low on another journey to nowhere, ultimately leading the S&P 500 to an estimated total return averaging less than 1.5% annually over thecoming 12-year period. There are certainly extended segments of history - even during the period since 2000 - when stocks have been rewarding investments; particularly measured from points where valuations were depressed to points where they became elevated. But to believe that stocks are a rewarding investment, regardless of valuation, is to ignore a century of history.

I’ll pause here for an essential reminder. The central lesson of the QE-induced “everything bubble” was that, in the face of zero interest rates, even extreme syndromes of overvalued, overbought, overbullish conditions were not enough to reward a hard-negative market outlook (as they had been in prior cycles across history). Instead, the key adaptation was this: in the face of zero interest rates, one had to wait until market internals deteriorated explicitly, indicating a shift toward increasing risk-aversion among investors, before taking a hard-negative view (see the “Box” in The Next Big Short for a more detailed discussion). As I noted in Support Drops Away, our concerns about that "market action" component have substantially increased in recent weeks. Conversely, in the event that market internals improve meaningfully, our view would become more neutral, despite what we see as obscene valuations here.

As I’ve regularly observed over time, the strongest market return/risk profiles typically emerge when a material retreat in valuations is joined by an early improvement in measures of market action. That combination would provide the best opportunity to expand market exposure. Despite our expectation that the present market cycle will be completed by a 40-55% loss, we have no requirement for that to occur as a prerequisite to taking a more constructive outlook. Instead, our classification of the market return/risk profile will shift as the observable evidence does. If we have any preference at all, it’s for a sufficiently larger range of market fluctuation to produce variations in the market return/risk classifications we identify, which would allow for greater variation in our market outlook.

Looking for excuses

In recent weeks, we’ve seen a flurry of articles along the lines that “old valuation measures don’t apply” and “old tried and true measures of risk no longer function.”

As I’ve regularly noted, the only feature of the advancing half-cycle since 2009 that has been legitimately “different” from history is that QE encouraged speculation even after the emergence of “overvalued, overbought, overbullish” extremes that had reliably warned of losses in prior market cycles across history, so one had to wait until market internals deteriorated explicitly, indicating a shift toward increasing risk-aversion among investors. Beyond that, as should be evident from the chart below, there’s simply no evidence that the mapping between reliable valuation measures and long-term, full-cycle market outcomes has been altered one iota. The illusion that old measures no longer apply is identical to what we observed during the 2000 and 2007 top formations, and is identical to what we’ve observed at valuation extremes across history.

What we’re seeing at present isn’t evidence that historically reliable measures don’t apply. Rather, we’re seeing investors looking for reassurance that the market would have collapsed by now if the risks were real, and impatiently second-guessing those measures so they will have an excuse to chase the bubble. The predictable outcome has been a flurry of new-era arguments that purport to show that historically reliable measures can be safely ignored.

I’ve detailed our valuation concerns in prior comments during what is now a nearly two-year sideways top formation. See in particular Sizing Up the Bubble, Structural Growth and Dope Dealers on Speed-Dial (which discusses various adjustments to the Shiller P/E, though it’s not our favorite metric), and Blowing Bubbles: QE and the Iron Laws. While the ratio of non-financial market capitalization to corporate gross value-added is most strongly correlated with actual subsequent market returns in post-war data, the ratio of market cap to nominal GDP offers a longer perspective, and is presented below. The only points in history featuring similar valuation extremes were 1929, 1937, and 2000, all which were followed by market losses of 50% or greater.

Of particular note lately is a “new era” argument that the level of MarketCap/GDP has shifted permanently higher, suggesting that elevated levels aren’t of concern, and that the standard-of-value has simply been raised. Be careful. The essential test of a hypothesis like this is to compare the valuation measure with actual subsequent market returns. In the case of MarketCap/GDP, what we find is that yes, the recent range of valuations has been higher, but as we observed after the 2000 and 2007 extremes, points of elevated valuation have been as predictably and reliably followed by poor subsequent returns as they have in market cycles across history. Put simply, it’s not valuation norms that have increased, but instead the willingness of investors to repeatedly chase stocks to valuation levels thatremain associated with predictably dismal subsequent outcomes. In the chart below, MarketCap/GDP is shown in blue, on an inverted log scale (left), with actual subsequent 12-year S&P 500 annual total returns shown in red (right scale).

Notice that while the depressed valuation levels we observed in 2002 and 2009 (spikes in the blue line, since the scale is inverted) were accompanied by commensurately high subsequent returns, we should equally expect current valuation extremes to be accompanied by awful returns in the coming years. Based on a variety of reliable measures, we presently estimate S&P 500 nominal total returns averaging about 1.5% annually over the coming 12-year horizon, with severe interim losses along the way. Given that the S&P 500 dividend yield is slightly over 2% here, this also means that investors should expect the S&P 500 Index itself to be lower 10-12 years from now, compared with current levels. This only seems like an extreme statement to those who are unfamiliar with market history. The same outcome has repeatedly followed other periods of extreme valuation.

Measured from the March 2009 low to the August 2016 peak in the S&P 500, the recent bull market has extended 7 years and 5 months, making the recent half-cycle not only the third longest advance, but the third most overvalued extreme in U.S. history. I’ve noted before, the recent peak also represents the single most extreme point of overvaluation in history on the basis of the median stock.

The advance to the 2000 peak, at over 9 years in length, qualified as the longest bull market since the previous record of 8 years and 2 months established (ominously) in the 1921-1929 advance. Approaching that 2000 peak, I encouraged investors to look back on the lessons learned after the record 1921-1929 bull market, once the complete market cycle was over. One book stands out as a classic: Security Analysis - Principles and Techniques by Benjamin Graham & David L. Dodd, still considered the ‘bible” of fundamental investment analysis. The book was published in 1934, after the DJIA had lost 89.2% of its value.

With the median stock more overvalued than at any point in history, with the most reliable capitalization-weighted measures at the highest extremes other than the 1929 and 2000 peaks, it’s useful for investors to recognize that the lesson of how this episode will end is already freely available.

From Graham & Dodd:

“One of the striking features of the past five years has been the domination of the financial scene by purely psychological elements. In previous bull markets the rise in stock prices remained in fairly close relationship with the improvement in business during the greater part of the cycle; it was only in its invariably short-lived culminating phase that quotations were forced to disproportionate heights by the unbridled optimism of the speculative contingent. But in the 1921-1929 cycle this ‘culminating phase’ lasted for years instead of for months, and it drew its support not from a group of speculators but from the entire financial community.

“The ‘new-era’ doctrine - that ‘good’ stocks (or ‘blue chips’) were sound investments regardless of how high the price paid for them - was at bottom only a means for rationalizing under the title of ‘investment’ the well-nigh universal capitulation to the gambling fever... there emerged a companion theory that common stocks represented the most profitable and therefore the most desirable media for long-term investment. This gospel was based on a certain amount of research, showing that diversified lists of common stocks had regularly increased in value over stated intervals of time for many years past... An alluring corollary of this principle was that making money in the stock market was now the easiest thing in the world. It was only necessary to buy ‘good’ stocks, regardless of price, and then to let nature take her upward course. The results of such a doctrine could not fail to be tragic.

“The notion that the desirability of a common stock was entirely independent of its prices seems incredibly absurd. Yet the new-era theory led directly to this thesis. If a stock was selling at 35 times the maximum recorded earnings, instead of 10 times its averageearnings, which was the pre-boom standard, the conclusion to be drawn was not that the stock was now too high but merely that the standard of value had been raised. Instead of judging the market price by established standards of value, the new-era based its standards of value on the market price. Hence all upper limits disappeared, not only upon the price at which a stock could sell, but even upon the price at which it would deserve to sell.

“But a rigid observance of old-time canons of commons-stock investment would have dictated the sale of one’s holdings at a substantial profit very early in the upswing and a historic abstinence from further participation in the market until at some point after the 1929 collapse when prices were again attractive in relation to earnings and other analytical factors.”

For our part, we’re convinced that in the advances approaching the 1929, 2000 and recent market peak, an emphasis on market internals would have allowed for more extended participation despite rich valuations. Yes, in the advancing half-cycle since 2009, the historical tendency for stocks to lose value once extreme “overvalued, overbought, overbullish” syndromes emerged was deferred by the Federal Reserve’s zero-interest rate policy, which encouraged continued speculation even after those extremes were established. Yes, that extension of speculative conditions turned out to be our Achilles Heel in the recent half-cycle. Instead, one had to wait for market internals to deteriorate explicitly before taking a hard-negative market view. The problem for the equity market here is that a) even short-term rates of 10 basis points were enough to allow a near-20% market loss in 2011, and also that b) those measures of internals have now deteriorated clearly on our measures.

Investors currently face the most hostile set of market conditions we identify across history: extended overvalued, overbought, overbullish extremes that are then joined by early deterioration in market action. These conditions are diametrically opposed to those that we associate with the most favorable market return/risk profiles.

Ironically, the response of investors and pension funds to this long-toothed, overvalued, uncorrected bubble has increasingly been to abandon risk-managed approaches in favor of rear-view-mirror investment approaches that remain fully-invested in passive indices all the time. Look. Passive, value-insensitive strategies look glorious in hindsight precisely because the markets are in the extended top-formation of a speculative bubble. Thesubsequent future returns of such strategies, at least on a full-cycle and long-term horizon, always map directly to the level of valuation that investors accept, and are likely to be distressing in the coming 10-12 years. This expectation can be demonstrated in data across a century of history.

In March 2000, I wrote “It can really seem like defensiveness is an enemy, and speculation is a friend. The same was true in the late 1960’s, when George McBundy of the Ford Foundation directed the managers of university endowments to become more aggressive: ‘We have the preliminary impression that over the long run, caution has cost our colleges and universities much more than imprudence or excessive risk-taking.’ In the plunge that followed, that preliminary impression turned out to be horribly incorrect.”

Like in 2000, I can’t speak to short-term outcomes. The “unpleasant skew” that accompanies current conditions implies that the single most likely outcome in any given week is actually a small advance, but unfortunately, those advances are overwhelmed by less frequent but nearly vertical market collapses that can wipe out months of progress in a handful of sessions. As a result, the “mode” of the probability distribution is positive, but the average market return is strikingly negative. Investors experience this climate as seeming calm, punctuated by abrupt air-pockets, free-falls and crashes. In over 30 years as a professional investor, I’ve found nothing to tighten our “timing” of these events once an overvalued, overbought, overbullish extreme is joined by deteriorating market action.

Part of an effective investment discipline is the ongoing research effort to look under every stone, and to insist on evidence rather than verbal arguments and data-free claims. We’ve openly and fully adapted to the features of the recent half-cycle that we’ve found to be legitimately “different” than other cycles. We continue to patiently adhere to that value-conscious, historically-informed, risk-managed discipline; open to new evidence, but not gullible in the face of old illusions that reappear at the peak of every speculative episode. Our views will change as the evidence shifts.

https://www.hussmanfunds.com/wmc/wmc161024.htm

[OriZ 3,157]

Interesting day today, looks like we're going to test the pre-brexit highs as support now on the S&P500, they are not much lower from today's close. If they hold the market could continue higher through election day but if they don't we could end up seeing 2,000 and if we see 2,000 that would mean around 10% decline from the top which I said would turn the elections back into a tossup. Below 2,000 favors Trump. Current levels still favor Clinton. All based on this:

http://www.visajourney.com/forums/topic/577938-one-year-to-nowhere/?p=8262915

Updated chart:

An update on the elections: I've been repeating for months that due to elevated stock prices, and based on research of centuries of data, Clinton will win the elections. I still believe that. However, if I saw it as an 80-20 chance before, after the developments of the last few days I have to allow for the off chance that due to this NOT being a "normal" election with normal candidates and normal circumstances, this could prove to be one of the exceptions in the study, as exceptions and anomalies always happen, there is no 100%. I would have to lower Clinton's chances to 65% at this point, and if the market moves beneath the support seen in the charts above, it could be lowered even further. So, right now still Clinton, but have to allow for developments that could lead to different outcomes.

In regards to the market; While it may seem like I am a broken record, I've uploaded a chart before that explains my position in this cycle as well as prior ones and how it relates to where the market actually is today. In short, I've turned cautious after years of bullishness while still emphasizing that at this point the market is still "good to go" in very late 2013. After allowing for further upside, I finally actually turned more neutral around mid-2014, and bearish in early 2015. This is the post with the chart I have posted in the past:

http://www.visajourney.com/forums/topic/577938-one-year-to-nowhere/?p=8283746

To place things even further in perspective, the chart below shows the FTSE All World index, a capitalization-weighted index of large and mid-cap stocks in developed and developing countries, covering about 95% of global investable equity value. From a cyclical perspective, the action of the global markets this year may prove to be less a continuation of an ongoing bull market than a corrective rally in what is already an ongoing bear market. As with the previous post and chart, the black lines mean turning neutral, the red lines mean bearish and green means bullish. Looking at this chart, it's clear to see that since the point of going neutral and especially bearish, so far there has been no reason to rescind. This will take time and patience, but the market is not healthy.

On that note, from Hussman:

I recognize it may seem like the current “permanently high plateau” in the market will never end, and that our market outlook will remain permanently unfavorable. On that note, it’s important to know that our current approach to classifying market return/risk profiles would encourage a constructive or leveraged investment stance across more than 70% of periods in market history, and reflecting the adaptations we introduced in mid-2014 (see the “Box” in The Next Big Short for details), more than half of periods since 2009 and even since 2000. In contrast, our current hard-negative outlook is associated with fewer than 20% of periods across history (see the chart in Calm Before the Storm to see how the S&P 500 has fared during this subset of market environments). Due to repeated episodes of extreme valuation in recent cycles, the hard-negative market return/risk profile we presently identify has prevailed more often than usual, comprising about 30% of periods since 2000, based on our current classification methods. Those periods since 2000 capture a cumulative -73% loss in the S&P 500, despite the absence of net losses over the past year. Put simply, market conditions will change, the estimated return/risk profile will shift, and we will align our market outlook accordingly. Current extremes seem like they will last forever. They will not.

Far beyond double

It's essential to recognize that current valuations cannot be "justified" by appeals to low interest rates. To see this, we can think about the response of risky securities to Fed-suppressed interest rates as having a “justified” component and a “speculative yield-seeking” component. Stick with me - this is important.

Consider a bond paying $100 in 10 years with no coupon payments, and suppose that given its risks, it would normally be priced for a 6% annual return when Treasury bill yields are 4%, producing a 2% "risk premium" over and above the yield on T-bills. Under those assumptions, the price of the bond would be 100/(1.06)^10 = $55.84.

Now suppose Treasury bill yields are instead expected to be held down at 1% for the first 5 years, with normal rates thereafter. In that case, it would be justified to price the bond to return just 3% over the first 5 years, and a normal 6% thereafter. This would put the price of the bond at 100/{(1.03)^5 x (1.06)^5} = $64.46, which is about 15% higher than the original price of $55.84. Why 15%? Because in order to take 3% out of returns for 5 years (ignoring a slight bit of compounding), one has to raise the price by 3% x 5 = 15%. That’s your “justified” response to depressed interest rates.

The same holds true for more complex profiles of interest-rate suppression, and for asset classes having larger or smaller risk premiums. Suppose we expect Treasury bill yields, currently near 0.25%, to take a full decade to normalize to 4%. In that case, the “justified” price response for a risky security is just the area of the triangle: 10 years x (4% - 0.25%)/2 = 18.75%.

An increase in the current price effectively takes away the same cumulative amount from future returns. And that’s the problem. Historically reliable valuation measures aren’t just 15% or 20% above their historical norms (which could at least be justified on the basis of low interest rates). They’re far beyond double those norms.

To illustrate this, let’s ask a question that mirrors the discussion above. How much would you have to invest in the S&P 500 today in order for the investment to grow to $1 after 12 years, including dividends? The chart below shows the historical answer (red line, right scale), along with one of our preferred valuation measures, the ratio of nonfinancial market capitalization to corporate gross value-added (blue line, left scale). See The Illusion That "Old Measures No Longer Apply" for an even longer-term perspective relating valuations and subsequent market returns.

Notice that valuations are highly informative about future investment prospects. When valuations are quite depressed, one can obtain $1 of future value by investing relatively little today. When valuations are quite elevated, one needs to make a larger investment today to obtain $1 of future value. Of course, there are a few outliers. For example, investors in 1986-1988 enjoyed a free-ride over the following 12 years thanks to bubble valuations 12 years later in 1998-2000, so they didn’t have to invest nearly as much as valuations suggested in order end the period with $1. Conversely, investors with a 12-year horizon did worse than valuations would have suggested in 1996-1997, as a result of the global financial crisis 12 years later in 2008-2009, so they would have had to invest more than expected in order to end the period with $1.

The horizontal green line shows the level consistent with a 10% annual total return over a 12-year horizon, which works out to an initial investment of about $0.32 in order to end with $1.00. Again, reliable valuation measures aren’t just 15-20% above this level; they’re far beyond double historical norms. At present, we estimate that investors need to invest about $0.83 in the S&P 500 in order to reach $1.00 of value, including dividends, 12 years from now. That works out to an expected annual total return of (1.00/0.83)^(1/12)-1 = 1.6%, which is quite close to the estimates we obtain from a variety of other reliable approaches.

The chart below offers a similar picture from a return perspective. It is a reminder that the recent “everything bubble” has produced the third most extreme equity market valuations, on reliable measures, in U.S. history (2000 and 1929 being the others), and the single worst 12-year expected return for a conventional stock-bond-cash portfolio mix in history. We presently see investors eagerly abandoning discretionary and risk-managed investment approaches in preference for passive approaches that remain fully-invested all the time. This is rear-view mirror investing, and the evidence suggests that now is the worst possible moment in history to make that shift.

As for monetary policy, I’ve demonstrated in U.S. and Japanese data that central-bank easing actually supports the financial markets only when investors are already inclined to speculate. That inclination is best inferred from the uniformity of market action across a broad range of securities, because when investors are inclined to speculate, they tend to be indiscriminate about it. In contrast, when investors are risk-averse, safe, low-interest liquidity is viewed as a desirable asset rather than an inferior one, so creating more of the stuff doesn’t provoke risk-taking or prevent market collapses (recall, for example, the aggressive and persistent Fed easing throughout the 2000-2002 and 2007-2009 collapses).

Low short-term interest rates reliably encourage investors to “reach for yield” in more speculative investments only when investors quietly rule out the potential for capital losses, or at least assume that any loss will be quickly recovered. The moment that investors begin to seriously consider the potential for material capital losses (and at current valuation extremes, a historically run-of-the-mill completion to the present market cycle would be a loss in the S&P 500 on the order of 40-55%), it’s really irrelevant whether short-term interest rates are 0.25%, 1%, or even 3%, because any safe, positive return at all is preferable to outright losses. That’s why investor risk-preferences are a critical determinant of whether, and when, monetary easing appears to “work.”

A few quick notes - we’re hearing the perennial arguments about “cash on the sidelines” waiting to gush into stocks. As always, one should remember that every security that is issued in the financial markets has to be held by someone, in precisely the form it was issued as (currency, Treasury bills, commercial paper, stocks, bonds) until that security is retired. What people observe as “cash on the sidelines” is nothing other than a mountain securities that have been issued in the form of short-term money market instruments, and those instruments will remain “on the sidelines” until they are retired. In the meantime, every single one of them will have to be held by someone. They do not “flow” anywhere. They simply change hands, and changing hands doesn’t affect their quantity.

All securities are priced, and their returns are determined, to ensure that every security that has been issued is held by someone at every moment in time. Prices and expected returns can change in an instant, without any material volume of transactions. All that needs to happen is a change in the relative eagerness of investors to hold one security versus another.

In that context, we saw a spike in September in the interest rate on U.S. dollar loans between foreign banks (“Eurodollars”), relative to Treasury bill yields. After a brief retreat, that spread is widening again. While many observers dismiss this as the result of changes in U.S. money market fund regulations, we observe the same widening of interbank spreads in other currencies (relative to the yields on government bills of the same maturity). A key difference between the two claims is bank default risk, because those interbank loans are essentially funded by uninsured deposits (for example, “Euroyen” are created when investors deposit Japanese yen at non-Japanese banks, and those deposits are uninsured). So we’re seeing some combination of increased demand for interbank funding at foreign banks, and increased reluctance to investors to make uninsured deposits at those banks. This is a concern worth monitoring.

Edited October 31, 2016 by OriZ

[OriZ 3,157]

Over the last several months, in particular, the number of articles discussing the shift from “active management” to “passive indexing” have surged.

I get it. The market seems to be immune to decline.

It is effectively the final evolution of “bull market psychology” as investors capitulate to the “if you can’t beat’em, join’em” mentality.

But it is just that. The final evolution of investor psychology that always leads the “sheep to the slaughter.”

Let me just clarify the record – “There is no such thing as passive investing.”

While you may be invested in an “index,” when the next bear market correction begins, and the pain of loss becomes large enough, “passive indexing” will turn into “active panic.”

Sure, you can hang on. But there will be a point where your conviction will eventually be broken. It is just a function of how much loss it takes to get there.

Over the last four years, as the Central Bank fueled surge in asset prices has climbed relentlessly higher, the psychological shift from active to passive management has gained ground. Unfortunately, this is a result of a psychological bias where recent performance is extrapolated indefinitely into the future. This is known as “recency or anchoring bias,” and is one of the primary factors that has the greatest effect on investor returns over time. As stated previously:

“However, in order to judge today’s market level, it is desirable, perhaps essential, to have a clear picture of its past behavior.

Speculators often prosper through ignorance;

it is a cliché that in a roaring bull market knowledge is superfluous and experience a handicap.

But the typical experience of the speculator is

one of temporary profit and ultimate loss.”

Yes. “YOU are a speculator.”

You have none, zero, nada, no control over the direction of an individual company, the index or the fund manager. You are simply SPECULATING on the price you paid for an asset that you HOPE to sell at a higher price to someone else in the future. That is, in its most basic form, a speculation.

The importance of that statement is that most individuals extrapolate past performance indefinitely into the future and become extremely complacent in managing for risk. This tendency is what leads investors to “buy high and sell low.”This psychology is displayed in the following chart.

The question that must be answered is whether this is just a bull market, or some sort of “new market” that will defy all previous experiences?

If this is just a bull market, then the term itself suggests that it is just the first half of a full-market cycle and eventually a bear market will follow. The chart below shows the history of full market cycles going back to 1900.

Historically, full market cycles have finished when prices complete a “mean reverting” process by falling well below the long-term mean. Since the beginning of the secular bull market in the 1980’s the full “mean reverting” process has not yet been completed due to the artificial interventions by Central Banks to prop up asset prices.

There is an argument to be made that this is could indeed be a “new market” given the continued interventions by global Central Banks in a direct effort to support asset prices. However, despite the coordinated efforts of Central Banks globally to keep asset prices inflated to support consumer confidence, there is plenty of historic evidence that suggests such attempts to manipulate markets are only temporary in nature.

This can also be seen by looking at the rate of change in the S&P 500 index over a 72-month period. The chart below shows the rate of change the real, inflation-adjusted, return of the S&P 500 index from 1900 to present. I have also overlaid that with the actual real S&P 500 index (log-2 basis). This more clearly shows that from current peaks of the long-term rate of change in the index, forward market returns have become less desirable.

The conclusion is quite simple. The current rate of change is in extreme territory and is exceeded only by five other market up-moves: the roaring bull market of the twenties leading into the Great Depression, the bull market of the fifties and the technology boom. Further, the trajectory of the up-move is similar to that of the market leading into the highs of 1929 and the highs in 1983. The spike in the ROC coming off the secular bear market lows of 1974, ended with the crash of 1987.

Such extreme movements in prices over a relatively short period, regardless of underlying circumstances, have all had similar outcomes. Consequently, investors should expect a similar outcome in the future. However, in the short-term psychology tends to overtake more logical thought processes as the “need for greed” keeps investors at the table long after the “cards have turned cold.”

Valuations also provide similar evidence that the current market is most likely no different than previous bull market cycles. The forward price/earnings (PE) ratio — the price of the S&P 500 divided by the expected earnings of those S&P 500 companies — is probably the most popular way to measure value in the stock market.

In theory, it tells us if the market is cheap or expensive relative to some long-term average. Unfortunately, since P/E’s are terrible at predicting short-term outcomes for the market, investors tend to quickly dismiss them as “being wrong this time.” Such attitudes have historically not worked out well for individuals.

The series of charts below show what valuations tell you about what should be expected as investors with respect to their longer-term investment goals. The charts below are the total dividend reinvested returns of the inflation adjusted S&P 500 index.

Not surprisingly, the expected total inflation-adjusted returns from currently high levels of valuation have historically been disappointing relative to what investors had witnessed previously.

Importantly, the charts above DO NOT mean that EVERY year will be a low return. What history suggests is that forward returns will be much more volatile with periods of significant drawdowns which will comprise a total long-term return at lower levels. Unfortunately, most investors will not survive to see that outcome.

The problem with the “passive indexing” argument is that it is primarily based on flawed assumptions of “average”returns over a period of time. However, the validity and dependability of this rosy view cannot be conclusive, because NO prediction, whether of a repetition of past patterns or of a complete break with past patterns, can be proved in advance to be right.

Nevertheless, past experience does have some things to say that are at least relevant to our problem. Optimism and confidence have always accompanied bull markets. This must be so otherwise the bull market could not have existed.Irrational exuberance, willful blindness, and overconfidence are the fuel which propels “bull markets” to their dizzying heights.

Unfortunately, exuberance and complacency are replaced by distrust and pessimism when bull markets eventually collapse.

As the evidence suggests, the current bull market is likely not a “new market” but just the first half of a full market cycle. Eventually, the cycle will complete itself as price goes through a mean reverting event. This is not a BEARISH prognostication but a simple reality. Nothing more. Nothing less.

As Adam Butler, Mike Philbrick and Rodrigo Gordillo penned back in 2013:

“

Portfolio growth is governed by the mathematics of compounding, which means that, for example, a 100% gain is erased by a 50% loss, and a 50% loss requires a 100% gain to get back to even.

Applying the same principles to where we are in the current bull/bear cycle is illuminating.

If we assume that the next bear market will deliver losses in-line with what we have experienced from bear markets through history,

then at the bottom of the next bear market investors will have lost 38% of their portfolio value.

The question is, how much must current investors expect stocks to gain before peaking

to justify owning them here instead of waiting to purchase them in the next bear market?

The most unbiased estimate of the magnitude of the next bear market is the historical median of 38%.

Using the math of compounding, we can determine that a 38% loss requires a 61% gain to break-even [1 / (1 – 38%)].

Logically then, and by extension, investors who choose to hold stocks today must expect gains of at least 61% in order to rationalize their investment; otherwise

they would eliminate the anxiety of riding the equity roller-coaster and simply invest in cash, waiting to pounce on stocks at equivalent or lower value at some point during the next bear market.”

In the near term, over the next several months or even couple of years, markets could very likely continue their bullish trend as long as nothing upsets the balance of investor confidence and market liquidity. However, of that, there is no guarantee.

As Ben Graham stated back in 1959:

“‘

The more it changes, the more it’s the same thing.’

I have always thought this motto applied to the stock market better than anywhere else. Now the really important part of the proverb is the phrase, ‘the more it changes.’

The economic world has changed radically and will change even more. Most people think now that the essential nature of the stock market has been undergoing a corresponding change.

But if my cliché is sound, then the stock market will continue to be essentially what it always was in the past,

a place where a big bull market is inevitably followed by a big bear market.

In other words,

a place where today’s free lunches are paid for doubly tomorrow.

In the light of recent experience,

I think the present level of the stock market is an extremely dangerous one.”

He is right, of course, things are little different now than they were then.

What is important to remember is that for every “bull market” there MUST be a “bear market.” While “passive indexing” sounds like a winning approach to “pace” the markets during the late stages of an advance, it is worth remembering it will also “pace” just as well during the subsequent decline.

Oh…so you say you’re going to “sell” those “passive ETF’s” before that happens?

Well, then you are not so “passive” after all.

https://realinvestmentadvice.com/the-bull-giveth-the-bear-taketh-youre-not-passive/

[OriZ 3,157]

SPX was very close to breaking support today. Had it broken, next target would be in the 2030-2080 range. The VIX is also signaling trouble having broken out of this pattern, which gives it a target around 33. That's more than 70% from today's close, which would probably translate to SPX around 2000.

Again, the question is will it happen quick enough to change the elections? To recap, based on this:

Quote

“The best single predictor of presidential re-election results that we found was the percentage change in the stock market during the three years that preceded Election Day,” said Goel. “Changes in stock prices had a positive, substantial and statistically significant association with incumbents’ performances in re-elections. We found that they accounted for more than a quarter of the variation in incumbents’ popular vote margins.”

The researchers studied every presidential re-election campaign in U.S. history back to George Washington’s successful bid of 1792. They found that incumbents who served during periods of rising stock prices typically do better in the elections than those who served during periods of falling stock prices.

Meanwhile, the relationship between how an incumbent performs and the changes in gross domestic product, inflation and unemployment is weaker and, with the latter two, “often insignificant,” according to the authors.

The study, posted on the Social Science Research Network (SSRN), acknowledges that a few incumbents were re-elected when the markets had declined and a few others were defeated when the markets had risen. But those margins of victory and defeat were smaller on average than when the direction of the markets and the incumbents’ fates matched.

Matthew Lampert, a Research Fellow of the Socionomics Institute and doctoral candidate at the University of Cambridge, says one of the study’s purposes is to address popular opinion surrounding elections. “We often hear people debate which presidential candidate will be better for the stock market,” Lampert said. “Our study comes to a different conclusion: that there is significant predictability in the opposite direction.”

The researchers also checked the measures that most analysts believe matter to voters, namely gross domestic product (GDP), inflation and unemployment. As it turns out, “Inflation and unemployment had no predictive value in any of our tests,” said statistician Goel. “GDP was a significant predictor in some of the simple models, but it was rendered insignificant when we combined it with the stock market in multiple regression analyses. In contrast, the stock market was a consistent indicator of re-election outcomes.”

The authors addressed the question of whether investors voted for or against incumbents simply because they made or lost money in stocks. “If rational self-interest were the basis for our results, then GDP and unemployment should have mattered at least equally,” said Prechter. “But they don’t.” Moreover, he said, “We contrasted eras when stocks were widely owned vs. hardly owned, and there was no difference in results.” Lampert concluded, “We think that the best explanation is that the trend of social mood is important in driving the valuations of both stocks and presidents.”

I have estimated Clinton will win. Now, besides the above there are several approaches. Some look at the 3 years prior to elections, such as the quote above .In that case, the SPX went from 1750 to 2111 today at the close. While that is a 20% gain, we have to remember that is only the SPX, and the broader market did not fare quite as well. Yes, it is a gain but is it significant enough to overcome the issues Clinton is dealing with? I say she has to hold at the 20% gain or more to be sure. The second approach talks about the year prior. Well, in the past 52 weeks the SPX is pretty much flat. The third approach which I have also posted in the past a couple pages back in this thread is this one: http://www.mcoscillator.com/learning_center/kb/special_market_reports/the_intersection_of_stock_market_political_races/

According to that Trump has a good shot at winning unless the market manages to reverse the course of recent months and especially days. Speaking of the past several months, here is another metric that says the same looking from Jul 31:

http://www.cnbc.com/2016/10/31/this-stock-market-metric-says-the-likely-winner-istrump.html

So in summary: One method is tied(flat market), two are Trump and one Clinton. I am not ready to back down from the prediction that Clinton will win. However, if in the next few days the market declines beneath 2100(as in less than a 20% gain in those 3 years), I will declare it a toss-up. Theoretically speaking because it won't happen, if in the next 5-6 days the SPX goes down as low as 1900 - I will predict trump will win. Conversely, if it can remain comfortably above 2100, I will continue to predict Clinton will win. Inbetween is no man's land.

The following chart shows the SPX with the current pre-brexit support. Notice that since the end of Jul we have been trending down. Notice, also, in the other chart I am showing the bollinger bands again. I have discussed those in length in the first pages of this thread. In short - price is usually contained within them, if price exits, it could lead to an acceleration of the trend but only short term, and eventually price will have to go back into the band and to the "scene of the crime" ie the same area where it exited the band. Other times the bands serve as resistance/support and do not allow price to move as fast, negating the need to return to the "scene of the crime" later on. So, the reason we see the long "tail" in today's price action(the candle on the right hand side of the chart shows today's activity with the tail showing the low of the day and where the body ends showing the close) could be due to the fact that price is being supported on the band, and will need to work its way down slower, through a bit of sideways consolidation or several days with "tails" in order to allow sufficient time for the bands to expand first. Either way, you can see the horizontal support levels on the chart. A break of 2000 and there is nothing but air all the way back down to last year's "crash" lows.

Edited November 2, 2016 by OriZ

[OriZ 3,157]

SPX was very close to breaking support today. Had it broken, next target would be in the 2030-2080 range. The VIX is also signaling trouble having broken out of this pattern, which gives it a target around 33. That's more than 70% from today's close, which would probably translate to SPX around 2000.

Again, the question is will it happen quick enough to change the elections? To recap, based on this:

Quote

“The best single predictor of presidential re-election results that we found was the percentage change in the stock market during the three years that preceded Election Day,” said Goel. “Changes in stock prices had a positive, substantial and statistically significant association with incumbents’ performances in re-elections. We found that they accounted for more than a quarter of the variation in incumbents’ popular vote margins.”

The researchers studied every presidential re-election campaign in U.S. history back to George Washington’s successful bid of 1792. They found that incumbents who served during periods of rising stock prices typically do better in the elections than those who served during periods of falling stock prices.

Meanwhile, the relationship between how an incumbent performs and the changes in gross domestic product, inflation and unemployment is weaker and, with the latter two, “often insignificant,” according to the authors.

The study, posted on the Social Science Research Network (SSRN), acknowledges that a few incumbents were re-elected when the markets had declined and a few others were defeated when the markets had risen. But those margins of victory and defeat were smaller on average than when the direction of the markets and the incumbents’ fates matched.

Matthew Lampert, a Research Fellow of the Socionomics Institute and doctoral candidate at the University of Cambridge, says one of the study’s purposes is to address popular opinion surrounding elections. “We often hear people debate which presidential candidate will be better for the stock market,” Lampert said. “Our study comes to a different conclusion: that there is significant predictability in the opposite direction.”

The researchers also checked the measures that most analysts believe matter to voters, namely gross domestic product (GDP), inflation and unemployment. As it turns out, “Inflation and unemployment had no predictive value in any of our tests,” said statistician Goel. “GDP was a significant predictor in some of the simple models, but it was rendered insignificant when we combined it with the stock market in multiple regression analyses. In contrast, the stock market was a consistent indicator of re-election outcomes.”

The authors addressed the question of whether investors voted for or against incumbents simply because they made or lost money in stocks. “If rational self-interest were the basis for our results, then GDP and unemployment should have mattered at least equally,” said Prechter. “But they don’t.” Moreover, he said, “We contrasted eras when stocks were widely owned vs. hardly owned, and there was no difference in results.” Lampert concluded, “We think that the best explanation is that the trend of social mood is important in driving the valuations of both stocks and presidents.”

I have estimated Clinton will win. Now, besides the above there are several approaches. Some look at the 3 years prior to elections, such as the quote above .In that case, the SPX went from 1750 to 2111 today at the close. While that is a 20% gain, we have to remember that is only the SPX, and the broader market did not fare quite as well. Yes, it is a gain but is it significant enough to overcome the issues Clinton is dealing with? I say she has to hold at the 20% gain or more to be sure. The second approach talks about the year prior. Well, in the past 52 weeks the SPX is pretty much flat. The third approach which I have also posted in the past a couple pages back in this thread is this one: http://www.mcoscillator.com/learning_center/kb/special_market_reports/the_intersection_of_stock_market_political_races/

According to that Trump has a good shot at winning unless the market manages to reverse the course of recent months and especially days. Speaking of the past several months, here is another metric that says the same looking from Jul 31:

http://www.cnbc.com/2016/10/31/this-stock-market-metric-says-the-likely-winner-istrump.html

So in summary: One method is tied(flat market), two are Trump and one Clinton. I am not ready to back down from the prediction that Clinton will win. However, if in the next few days the market declines beneath 2100(as in less than a 20% gain in those 3 years), I will declare it a toss-up. Theoretically speaking because it won't happen, if in the next 5-6 days the SPX goes down as low as 1900 - I will predict trump will win. Conversely, if it can remain comfortably above 2100, I will continue to predict Clinton will win. Inbetween is no man's land.

The following chart shows the SPX with the current pre-brexit support. Notice that since the end of Jul we have been trending down. Notice, also, in the other chart I am showing the bollinger bands again. I have discussed those in length in the first pages of this thread. In short - price is usually contained within them, if price exits, it could lead to an acceleration of the trend but only short term, and eventually price will have to go back into the band and to the "scene of the crime" ie the same area where it exited the band. Other times the bands serve as resistance/support and do not allow price to move as fast, negating the need to return to the "scene of the crime" later on. So, the reason we see the long "tail" in today's price action(the candle on the right hand side of the chart shows today's activity with the tail showing the low of the day and where the body ends showing the close) could be due to the fact that price is being supported on the band, and will need to work its way down slower, through a bit of sideways consolidation or several days with "tails" in order to allow sufficient time for the bands to expand first. Either way, you can see the horizontal support levels on the chart. A break of 2000 and there is nothing but air all the way back down to last year's "crash" lows.

Not sure what happened to the images in the other post, I think the site is under maintenance. Anyway, Mcclellan now says based on the method from above, he thinks Trump will win the popular vote. I actually tend to agree. Similarly to what I said in the election prediction thread, my view is it is very likely to have another Bush/Gore scenario, with Trump winning but Clinton taking the electoral college. This will be tighter than many believe. I am not even sure anymore that Clinton will go over 300. Trump winning is not excluded anymore either. We'll see. Here is his prediction:

http://www.mcoscillator.com/learning_center/weekly_chart/my_final_2016_poll_analysis/

SPX broke the support I had talked about and ended the week near the lows, which is right by its initial target of 2080. There is now lots of support between the 2000-2030 area and 2080. This whole range is literally going to determine the future of this market in coming years. A break of 2000, and we're talking major bear again. So another 4% can make the difference between life and death, the market needs to hold on to these levels if it wants to keep moving higher, and while I said 1900-2100 would be a toss up area for the elections, above 2000 still favors Clinton, at least as far as the electoral vote goes. There are definitely mixed signals out there, which leads me to conclude there will likely be mixed results., Under 2000 Trump is the favorite, but that's not going to happen in 2 trading days.

It's a little hard to see, but in the chart below the little thin horizontal black lines on the right side of the chart show again what I have said about the bands in the past. We can see that every day this week, the market returned to the "scene of the crime" which has allowed itself to continue down. Notice in other instances before, when it "jumped the gun" it was akin to a rubberband snapping. Meaning, there was a huge, quick fall and then a large bounce. The gradual decline of this week, in that sense is actually more sustainable due to the constant revisiting of the previous day's area where price ditched the lower band.

Regardless and in the very near term, as early as Monday, we could get a bounce as it's becoming pretty oversold.

And, in regards to today's employment figures;

Edited November 5, 2016 by OriZ

[Rob L 3,811]

Trump will not win the popular vote and may not break 43 %

[OriZ 3,157]

Trump will not win the popular vote and may not break 43 %

Well, bottom line is Clinton will be prez. That's been consistent for months now, and especially after today's announcement.

[OriZ 3,157]

IMPORTANT RATE HIKE UPDATE:

I was adamant the FED was NOT going to raise rates this year, even at the time their goons thought they would raise 4 times, and have shared in detail what was behind my view several times throughout this thread and how I knew they were not going to hike despite all the "experts" being certain they will. I said that once there is a change, and once T-Bills move up closer to 0.5% I will update. Well, T-Bills have now moved to 0.41% which is the highest point they have been in many years. This is not quite enough yet for me to be confident we will get a hike in December; Market action could still change that, for example, a decline in the stock market will probably be uniform with a decline in T-Bill rates that may take us back down too far away from 0.5%. At this point though, I felt this was an important enough update - as there has not been one like it since Dec of last year which was the only time I said they will actually hike(and they did). So, the closer we get to Dec, I'll keep following the T-Bill rate. If it's 0.45% or up, I'd say there is a good chance for a hike(above 0.5% would be virtually guaranteed).

[Voice of Reason 10,298]

I truly wish I had enough understanding of the markets to understand 1/10 of what you post. I am sure you are right, but I just don't get any of it.

[OriZ 3,157]

I truly wish I had enough understanding of the markets to understand 1/10 of what you post. I am sure you are right, but I just don't get any of it.

Read pages 32-36 man. No need to even read the ones before it as I already summarized it all to make everything as easy as possible. I'm sure you'll get a clear cut understanding of everything.

[B_J 2,752]

I truly wish I had enough understanding of the markets to understand 1/10 of what you post. I am sure you are right, but I just don't get any of it.

I really like when there is a graph or chart to help make things simpler. Nope, I'm still lost.

[Rob L 3,811]

I really like when there is a graph or chart to help make things simpler. Nope, I'm still lost.

[OriZ 3,157]

I really like when there is a graph or chart to help make things simpler. Nope, I'm still lost.

I actually used to teach technical analysis lol. But I'm over it now. I only stick to the real basic stuff when posting....there's a whole lot more to it.

[Mike122413 0]

Posts like this should be deleted, Off topic. this is no place for S&P 500?