One Year To Nowhere

[Expat1 971]

When I grow up im going to work on the HSI trading floor. After my 30 minute trading day I will spend the rest of the time playing around.

[OriZ 3,157]

So im tracking from where i got out in early Dec, and so far have dodged over 7k in losses, and don't see the pain ending soon. Cap to gdp is under 115%, needs to drop another 20 or so then i'll sift the debris and see what looks attractive.

In pre-sifting the only sector that I like right now as a whole is energy, Shiller is around 11 which gives me a mild interest. Banking/financial services valuations don't look too bad, within 10% of interesting. The other sectors are at least 40% overvalued and I wouldnt invest someone else's money there. After ETF dumping starts, and it will, these are probably the two areas that I will be looking at. ETF's are going to screw us all though. That schtick ahould be outlawed bleh. It artificially inflates the stocks of bad companies and depresses stocks of good companies. Indexes don't grow, companies do.

It's still going to be relatively high in the 90's. Personally I'd like to see it back in the 60's first(Market Cap/GDP that is). I like energy only because I think oil will bounce, however I still wouldn't really touch anything(definitely not financials), not worth the risk at this point.

When I grow up im going to work on the HSI trading floor. After my 30 minute trading day I will spend the rest of the time playing around.

lol Shanghai halted trading second day this week, I'm assuming that's what you're referring to? US Futures down more than 2%, should be another interesting day.

[Expat1 971]

It's still going to be relatively high in the 90's. Personally I'd like to see it back in the 60's first(Market Cap/GDP that is). I like energy only because I think oil will bounce, however I still wouldn't really touch anything(definitely not financials), not worth the risk at this point.

lol Shanghai halted trading second day this week, I'm assuming that's what you're referring to? US Futures down more than 2%, should be another interesting day.

I'm only trolling sectors. Ain't touching anything right now.

Yep I think they hit the circuit and closed the market in like 25 minutes LOL. Short working day. Wonder how many short sellers they will arrest this time. Confucious say build big dam, make bigger flood. Confucious was a smart investor.

Today is going to be very, very interesting especially in the NASDAQ and Russell. Closer to 3% and you guys are just waking up. I havent seen a 100+ point drop in the NASDAQ in awhile. I'm highly interested in today's floor and who's buying.

Incidentally Soros in his speech today (he's somewhere in Asia) is comparing this market to 2008. I'm kinda expecting a deep and rapid drop myself. I'm kinda thinking that there's less cash out there than people think and Im wondering whose liquidity will dry up first, triggering THE rout that will bring us back to sane valuations.

[OriZ 3,157]

Richard Fisher basically admitted the "Federal Open Mouth Committee" as I like to call it is a scam.

In a dynamite interview, Richard Fisher, former president and CEO of the Federal Reserve Bank of Dallas, gave what may be the biggest confession you'll ever see and hear from a Federal Reserve insider: the Federal Reserve knowingly "front ran" the US stock market recovery (i.e., manipulated the market) and created a huge asset bubble. Fisher expresses certainty that the "juiced" stock market will come down and iscoming down now that the Fed has taken its foot off the accelerator ... and that it has a long way yet to go.

While that is no news to readers here whose eyes are wide open, a "market put" has been denied by the Fed and by many market advisors. That the market was an overinflated bubble created by the Fed has been denied, too; but Fisher clearly and gleefully admits the Fed created a bubble that will have to deflate now that the Federal Reserve's stimulus is off.

As one of the members of the Federal Reserve's FOMC (the Federal Open Market Committee, which sets US monetary policy), Richard Fisher participated in and voted on all of the Fed's policies of zero interest and quantitative easing, so he has inside knowledge of all the discussions behind the scenes at the Fed.

Here are the significant quotes from Richard Fisher on CNBC's video:

What the Fed did -- and I was part of that group -- is we front-loaded a tremendous market rally, starting in 2009.

It's sort of what I call the "reverse Whimpy factor" -- give me two hamburgers today for one tomorrow.

I'm not surprised that almost every index you can look at ... was down significantly. [Referring to the results in the stock market after the Fed raised rates in December.]

Basically, we had a tremendous rally, and I think there's a great digestive period that is likely to take place now, and it may continue.

We front-loaded at the Federal Reserve an enormous rally in order to accomplish a wealth effect.

I wouldn't blame [what is happening in the market's now] on China. We're always looking for excuses.

I wasn't surprised at last year. And I wouldn't be surprised at a rather fallow performance this year as well.

A lot of people are building cash positions.... Those [investors] that are taking a longer term view are being extremely cautious here, are raising their cash levels, are nervous about the valuations that are in the market.

The values are very richly priced here, so I could see significant downside.

Asked if saw a big unwind from the Fed's 6.5-year policy and what it would look like on the way down, Fisher responded,

I was warning my colleagues, "Don't go wobbly if we have a 10-20% correction at some point.... Everybody you talk to ... has been warning that these markets are heavily priced.

Elsewhere Fisher said:

The Federal Reserve is a giant weapon that has no ammunition left.

You have to be careful here and frank about what drove the markets.... It was, the Fed, the Fed, the Fed, the European Central Bank, the Japanese Central bank ... all quantitatively driven by central bank activity. That's not the way markets should be working.... They were juiced up by central banks, including the Federal Reserve.... So, I think you have to acknowledge reality.

It's about time for breaking the economic denial. Acknowledging reality is what many in the mainstream media, at the Fed, and among economists and stock analysts refused to do.

Now that the US stock market appears to be crashing, is Richard Fisher's confession to cover his own hind end, by saying, "I warned the guys about this, and I voted against QE3 because I knew it went too far?" Is he just the first rat to flee the sinking ship, or is he just the most honest of Fed officials who is no longer on the board so feels freer to talk?

http://safehaven.com/article/40068/fed-official-confesses-fed-rigged-stock-market-crash-certain

[Expat1 971]

http://www.cnbc.com/2016/01/07/saut-how-long-the-stock-selling-stampede-may-last.html

This is the same idiot who predicted the "tear your face off rally" running his mouth today about a 17-25 session selling stampede.

On Thursday, Saut blamed a "cacophony of exogenous events" for derailing the traditional year-end rally and leading to the worst start to a new year on Wall Street since 2008.

It all began with "the $1.2 trillion options and futures expiration" on quadruple-witching Friday on Dec. 18, Saut said. "That upset the rhythm of the rally. But we gathered our strength and came back the next week. And then you've been hit by this potential war between Saudi Arabia and Iran, the Chinese slowdown, and the 'H-bomb' of North Korea."

"The markets look like they're in a free fall right here," he said. "It feels like we're in one of those selling stampedes, and they typically last 17 to 25 sessions. And this would be only session six. I would be more cautious here."

[OriZ 3,157]

Oh my. He's pessimistic. It might be time to turn bullish.

[Expat1 971]

Oh my. He's pessimistic. It might be time to turn bullish.

Not a chance.

The market tried to stabilize for an hour or two but the support isnt there. I think we're going to test August, hesitate there, maybe for awhile, and then keep falling.

Golds making a nice little rally. At 1250 im not buying that anymore either. Bleh

[OriZ 3,157]

My target atm on the S&P500 is 1900, and then we'll see. Remember my post about bollinger bands before? Although that post was using a monthly chart it works the same in all time frames. Right now on the daily we're sliding out of the lower band which sits at 1970 - price right now is 1946. This WILL require a return to the "Scene of the crime"(ie 1970ish) however it doesn't have to happen right away, we could definitely see more downside first. Normally, once price is out of the lower band it will actually act as resistance for a while and price could actually accelerate and move further away from it. But then once it's back in a revisit is all but certain.

[OriZ 3,157]

Btw, as far as bonds are concerned again, there is no further rate hike seen atm. If that changes I will make sure to mention it but for now it's done.

As far as interest rates go, I wanna show why I think the FED usually follows what the bond market dictates. This chart compares the timing of the Fed's interest rate decisions with the yields on US treasury bills from 2001 to 2005.

The black line is the US T-Bill yield, set by the free market. The red line is the Federal Funds Target Rate, set by the FED. Take a close look and you'll see that the bond market moves first, and the FED follows.

Still don't believe me? Lets zoom out a little.

Lets zoom out a little more:

So history clearly shows that the T-Bill market moves first, and the Fed's interest rate changes follow.

What about dramatic periods of double-digit rates? Here are T-bill rates and the Effective Federal Funds Rate (a weighted average of the Fed Funds rate across all banking transactions) from 1978 to 1984.

T-bill rates (lower line) peaked four times in 1980-1982. Each of those peaks occurred a month or more before subsequent, reactive peaks in the Federal Funds rate (upper line). Yet Paul Volcker, the Fed Chairman at the time, is widely credited with ending stagflation by raising the Federal Funds Rate to record levels. It was not him who raised them, it was the market.

Also notice the Fed’s rate also lags at bottoms, as clearly shown on the chart at the lows of 1980, 1981 and 1982-3.

So the reason that a couple of weeks ago I said bonds are finally signaling a hike, is because of this:

http://www.marketwatch.com/investing/bond/tmubmusd03m?CountryCode=bx

For the first time since 2009 T-bill rates spiked over 0.25%. That is what the FED was waiting for and it was time for the Fed to follow. Why did I then say, that for now it is done, despite the fact that the expectation at the moment is for 4 more hikes in 2016? Because t-bills have not shown any follow through, they have actually fallen slightly, down to 0.19% as of today. I will not be expecting a hike until t-bill rates are closer to 0.50%. I don't care how many people do.

Lookie lookie, after the recent decline now markets are only pricing in a 65% chance of a rate hike in june, whereas before that they were certain a hike was already going to happen in March. And the FED itself expected(supposedly) to raise it 4 times this year. And the three month t-bill? Still saying no. I'll wait till that changes.

[X Factor 1,111]

The following chart shows a high probability of downward pressure on the markets in January. If you are looking for short term direction this is invaluable. I already purchased some February SPX Put butterfly.

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SPX butterflies closed for nearly 50% profit. Edited January 7, 2016 by X Factor

[OriZ 3,157]

SPX butterflies closed for nearly 50% profit.

Good job. I'd close butterflies too. But being I use synthetic futures - Greeks don't matter to me. So still fully short here

[Expat1 971]

Lookie lookie, after the recent decline now markets are only pricing in a 65% chance of a rate hike in june, whereas before that they were certain a hike was already going to happen in March. And the FED itself expected(supposedly) to raise it 4 times this year. And the three month t-bill? Still saying no. I'll wait till that changes.

I believe they will raise again in March/April. Fundamentally the job market/wages appears to be improving and I believe their goal is to normalize their policy.

The admission that they dck'd around in the markets is surprising. Everyone knew it, but it's been impolite to talk about it.

SPX butterflies closed for nearly 50% profit.

The Chinese would have warrants out for both of you LOL

Edited January 8, 2016 by Expat1

[OriZ 3,157]

I believe they will raise again in March/April. Fundamentally the job market/wages appears to be improving and I believe their goal is to normalize their policy.

The admission that they dck'd around in the markets is surprising. Everyone knew it, but it's been impolite to talk about it.

I have said it before and can't stress it enough - the job market is the single most lagging indicator that exists. The fact it seems to be improving means nothing as it normally turns down many many months behind most other measures of economic activity.

During the past 4(!) years there were many, many periods of time everyone expected a rake hike "this month" "next month" etc, and each and every time bonds signaled it was not the time. As I have tried to show in my earlier post, the fed follows the bond market and not the other way around. Once the bond market was finally ready, in December, I said they will finally do it, and they did. Right afterwards I said bonds are signaling it's done(at the time, expectations in the market were for a hike in March). Today, all of a sudden expectations are for a hike not before June. And soon enough it will be Sep, and so on and so forth just like the last 4 years.

Do you really think they will raise rates into a falling market? If you expect this thing to seriously go south by the end of spring, then expect even the jobs market to show early signs of weakness by March/April. I say there's no way they raise rates as long as t-bills remain where they are at present. Once they start moving again, if that happens, I will have a different anticipation and will state it but for now, no hikes in 2016.

Btw about my post earlier - when I said target was 1900 - I still believe longer term it's 1100, but short term I think it's still gonna play around so lets asses things at 1900 and see where it's going in the near term.

Edited January 8, 2016 by OriZ

[OriZ 3,157]

My target atm on the S&P500 is 1900, and then we'll see. Remember my post about bollinger bands before? Although that post was using a monthly chart it works the same in all time frames. Right now on the daily we're sliding out of the lower band which sits at 1970 - price right now is 1946. This WILL require a return to the "Scene of the crime"(ie 1970ish) however it doesn't have to happen right away, we could definitely see more downside first. Normally, once price is out of the lower band it will actually act as resistance for a while and price could actually accelerate and move further away from it. But then once it's back in a revisit is all but certain.

One more thing to add to this comment - lets compare it to August via a chart.

The first dark red horizontal line(from the left) is when price slipped below the lower band in August. The arrow pointing down shows how price then violently accelerated to the downside, until(small green line) it was finally able to get back into the bands. That meant that now the target was to go back to the same level of the red line. The first time in Sep was close, but then in Oct(small arrow pointing down) it finally met it(and then continued above it, too). Inbetween, we have a small arrow pointing up in the bottom of the chart, that was in the Sep correction, price slipped out for two days, but was able to get back inside without further downside.

So now we're left with the third such occasion in the last year, the second dark red line(right side of chart). That is where price "escaped" today. Are we going to turn back up towards 1970 right away, or are we going to have a few more days of a crash, first? Well, nothing can tell you that. All I know is, 1970 will need to be revisited, long before we'll see levels such as 1100.

[Expat1 971]

One more thing to add to this comment - lets compare it to August via a chart.

The first dark red horizontal line(from the left) is when price slipped below the lower band in August. The arrow pointing down shows how price then violently accelerated to the downside, until(small green line) it was finally able to get back into the bands. That meant that now the target was to go back to the same level of the red line. The first time in Sep was close, but then in Oct(small arrow pointing down) it finally met it(and then continued above it, too). Inbetween, we have a small arrow pointing up in the bottom of the chart, that was in the Sep correction, price slipped out for two days, but was able to get back inside without further downside.

So now we're left with the third such occasion in the last year, the second dark red line(right side of chart). That is where price "escaped" today. Are we going to turn back up towards 1970 right away, or are we going to have a few more days of a crash, first? Well, nothing can tell you that. All I know is, 1970 will need to be revisited, long before we'll see levels such as 1100.

Good chart, but this time, i think they want to give you the stepwise bear correction that you are predicting. If you're right on interest rates, i think i'll get the jolt that i'm expecting.

I think they will stick with their plan for no other reason but to sustain confidence. The market? It's going to correct either way. That's just me, and Im often, but not always, right. Two hikes or one more earnings season either way too LOL. Thats the beauty of it.

Edited January 8, 2016 by Expat1