Friday, October 17, 2014

Jim Cramer Declares His Cheklist Met and that We've hit an Investable Bottom

     I told you in previous posts that his bearishness the last few weeks kind of validated my own bearishness-it helped my conviction. It's just that Cramer is so rarely bearish so when he makes bearish sounds you have to sit up and listen.

    He had given us a 10 point checklist on Mad Money that had to be met. He's now declared them met or at least mostly met and that we're now at an investable bottom. So as he soldiified my bearish conviction has he now softened it with his declaration that bearishness is over?

    Not really. To be sure-I wasn't bearish because he was, just found it a compelling hint that I might be on the right track. Cramer is a congenital bull-at least since he started his tv show. In the old days at his hedge fund, you know it was different. Remember that time when that video of him talking about deliberately buying up the futures in the premarket then selling it all to drag down the market when it opened? Did Jon Stewart every savage him on that one.

    Here was Cramer on his hedge fund days.

     Let me just be clear: I think Jim got a raw deal there. However, this is why I'm hearing his declaration of victory of all things bullish, I'm not really listening to it.

    Cramer has to be bullish on his show. His post hedge fund personal requires him to be what he himself refers to in the YouTube video above a 'moron Long.' It's the nature of the beast. The public doesn't understand the market too well and the idea of shorting a stock-of making money off it dropping sounds-well, evil. Again, remember the way Stewart spit his righteous indignation all over Cramer's face during that interview.

    So I don't really hold it against him for not telling us everything he knows on Mad Money. Much of what he says on the show is the God's honest Truth. However, if he's committed any sin, it's the sin of omission. Out of necessity.

    Listen, if you notice CNBC, very few like to be bearish publicly on that network. Even Fast Money where we have short term traders who know perfectly well that you can make money just as easily on the short as the long side don't like to talk to much about the short side. The entire network is totally biased to the long side.

    What isn't commonly appreciated about bias, is just because you may be biased doesn't mean you're wrong. That's one answer I have to those who complain about the title of my blog.

     CNBC may be biased but the bias doesn't hurt as much as it could. How much could it hurt? It would hurt a lot more if the network was congenitally bearish-as the fact is that over Keyues' Long Run, the market itself has a very strong bullish bias. Think about it. Since the Nasdaq driven bear market of 2000-2002 after the Internet boom-bubble of the nineties, the Dow and S&P have been up 10 of the last 11 years. Of course, the one down year-2008 was a doozy.

      Still, the market usually goes up, for every 8 years, 5 to 6 of the years will be up years. So bulls have a built in advantage. Permabears then are less reliable than permabulls-they're going to be wrong  more often. I'm no Sumner fan as you know, but he's right in what he's said about those who predicted 10 of the last 7 recessions.

       I try then not to be biased to either the bull or the bear side-though I realize that usually it will be a bull market. I was very bearish in 2008 and made some money buying puts in the financials-of course, I'm not great at knowing when to say when. Since the March, 2009 rally, I haven't bean bearish since. I am still for now.

       Cramer claims that most of his list was met today but he graded with something of a curve. Even the items most plausible like number 1-getting Ebola under control is pretty premature. By under control he means the news flow-as he said on his show tonight, the only way to get control of the disease itself is by developing drugs that will cure it.

       It's not impossible that he's right and that we've gotten control of the news flow now. Obama gave a great 'fireside chat' with Chris Mathews Thursday night and has now named an 'Ebola Czar.' Still, it could be that we've gotten control of the headlines but it also could be that we haven't .The trouble is that we're already dealing with an Ebola crisis. By the WHO failing to contain it in a few African villages as it did in the past, this means that a simple quarantine will not solve the problem. We have an epidemic in 3 West African countries and it needs to be defeated there. With such stakes, how can we be so certain that there will be no more terrible headlines to jar the market? There was a health professional on CNBC Thursday morning who seems to think that while we won't have an epidemic in the US we will have the spectre of /30 or 40 cases in a major city'-if that's the case there will certainly be more headlines that will cause everyone to panic.

    Arguably number 2 has come to fruition: we did see all stocks get hit on Wednesday-all the bulls including Cramer are calling this the 'whoosh' moment. I remember in 2008 there were many days that it was believed we had the 'whoosh' moment only to see that there would be others.

    Number 3 is plausible-we did have 'specs' hit hard with Netflix losing 25% of it's value on it's disappointing subscription levels. Still, there could still be more. What about Amazon going lower? What about Google getting hit? The trouble here is the trouble in all of his list: many of his items have shown some progress but he seems a little premature declaring victory. I mean take number 4-oil has to find its footing.

    On Thursday after touching $80, oil rallied a little. Cramer now declares it stabilized but , again, surely he's heard of a dead cat bounce. Indeed, oil actually weakened considerably today after rallying early to basically flat. How then can we be so sure that it's found a footing? Yet he declares that if oil is sold off again it will find a buyer. It just seems too early and with very little to declare this footing: I mean one rally of a dollar followed by a day it ended basically unchanged?

    Nowhere is his case weaker though than on technicals. stabilizing. His case rested on the Vix falling sharply, It did fall $3.21 though that was a $1.60 above it's low for the day. I mean one day down in the Vix is enough to declare the technicals benign?

    To me there are a lot of things that suggest otherwise. Again, look at how weak oil was today. Bond yields again fell today after rallying of it's dip beneath 2 percent on Wednesday. Also the small caps fell of again today after rallying all week. A lot of bulls have been arguing this shows we're at a bottom and that the small caps are the place to be, but it could just as soon be a relief rally which today suggests it was as the Russell lagged today. It seems to me these bulls are forgetting that we're at the wrong part of the economic and market cycle for the small caps-this is at the beginning of a recovery and a new bull market. Our bull market is 5 years old.

     Then you have what is in many ways the worst performance of all: the S&P. For weeks the bulls had been prophesying that the S&P would bottom at it's 100 day moving average of 1905 and then bounce up like a jack in the box. I had my doubts, but even I was shocked in how the S&P fell right through the floor of 1905 with no bounce at all. It fell through that floor early in the week and never looked back. It then breached the next support level of 1875 without a look back and at the bottom on Wednesday was only about 17 points away from 1800  Even after today's 'biggest rally of the year'-the S&P never came close to threatening 1905-it never even got to 1900-and it finished at 1884-which is puts it another huge rally just to get to 1905.

    That's a terrible technical performance which suggests that 1905 is probably resistance now already. It's quite plausible that the S&P will test 1800 again before it tests 1905.

    Then we have the worst indicator of all: this was the biggest rally of 2014. Remember: the biggest rallies are always in bear markets.

    UPDATE: Any discussion of Cramer is remiss without his great 'They know nothing' rant.

     It's right up there with the Rick Santelli rant-that started the Tea Party. 

Thursday, October 16, 2014

After Seeing the House Ebola Hearings, I Can See Why GOP is Favored in 2014

      It''s now obvious that all important problems in the world wouldn't be here if it weren't for Obama. I sure hope the polls that show a GOP Senate next year are right! You really want the same people running the House running the Senate .

      The House GOP has solved the Ebola threat: a travel ban. That is the only thing we need to do based on their questions to the medical professionals today. Never mind what the disease is, how it's caught, and what we need to do to tamp down on it. Let's just ban people from Africa from coming to the US. The Ebola problem will be solved.

       They predictably don't much care about the humanitarian crisis in West Africa. Who cares about that? The GOP cares about Ebola for two reasons.
      1). As applies to every question. the main interest is to the extent that somehow Ebola's very existence is all Obama's fault

      2). As a bonus, the content of this fault is that he won't ban all planes from West Africa.
      I mean the GOP has always wanted an excuse to ban any more blacks in this country and now they have a ready made excuse.

       Listen, I'm not saying that there isn't some concern that's legitimate about flights from these countries though I doubt a total restriction is the answer but, I am struck watching this hearing-how little interest there was in anything but flight bans from House Republicans. I see why everyone thinks things will be better when they take over the Senate, if they do it.

       As for Ebola itself, the worry is that this is different than previous cases of Ebola. Then it was always relegated to a few villages where they could be quarantined and the disease killed off. This time it's now reached epidemic levels in 3 West African countries.

      The CDC understandably doesn't want to be alarmist and create a panic, but understating the threat too much is counterproductive. A medical expert on CNBC this morning, .Scott Gottlick, suggested that while we certainly won't have an Ebola epidemic in America, we could see 30 or 40 cases in one country. If this is the case the CDC needs to be careful not to squander it's credibility by being overly sanguine.

       P.S. No, Ebola is not going to define Obama's presidency. Talk about GOP wishful thinking.

        Seriously, how can anyone want conservatives in charge when they say things like this?

Unemployment Claims Fall to 264,000, Lowest Since April, 2000; Markets Tank

     To me that says it all about this market. Have no doubt about this: this is a great Macro number. There was just an economist, Richard Bernstein, on CNBC who complained that this was a great number and a leading indicator to boot which shows that some very good things are coming.

     As an economist he knows what he's talking about and he is right that it's a great number and that claims are considered a leading indicator. However, what he doesn't get is that this doesn't matter for the market right now. He said that the number clearly shows that the economy is getting better and that's all the market cares about.

     He knows his economics but not necessarily his markets. The market doesn't care about that right now. It's not looking to weekly jobless claims. It's no surprise to me that it sold this. It ultimately sold 245,000 new jobs on nonfarm payrolls after initially rising.

      The market is worried about global growth-everything but the US economy. It's the drop in oil and the rest of the commodities, a Europe in danger of a triple dip and a slower China and disappointing Japan.

     It also doesn't help that this is the best number since April, 2000-as that was at the start of a sharp 2 year bear market correction after the Internet bubble. This is now the second time we've heard about a number being the best since 2000. Sumner was citing some such stat last week. Actually it looks like he may right:

     "The 4-week moving average of layoffs came out today at 287,750.  Total civilian employment in September was 146,600,000.  The ratio of the two, i.e. the chance of being laid [off---ouch that might have been my most embarrassing mistake ever] during a given week if you had a job, was below 2 in 1000.  That’s only happened once before in all of American history–April 2000.  (We don’t have data going all the way back, but the ratio was considerably higher in the booming 1960s, and I’m confident layoffs were much more common in earlier decades for which we don’t have data.  (“Gilded Age” bosses could lay off workers whenever they wanted.) And it seems very likely that we will soon break the April 2000 record, maybe this month."

     He'll love that. However even if he's right-this number may have pushed the moving average beneath that, April 2000 is not a great reference point. That was the beginning of a sharp 3 year bear market. Dennis Cartman thinks this is the start of a prolonged bear market-defined as a drop of at least 20% from a market peak. Currently we're getting close to a S&P 'correction'-a 10% drop from the top. Cartman:

      "The selloff in global markets is set to continue as a bear market takes hold "for a long period of time," according to widely followed investor Dennis Gartman, who warned investors not to go long on stocks."

     "This is the start of a bear market," Gartman, the founder of the closely watched Gartman Letter, told CNBC Europe's "Squawk Box" on Thursday. 
      "You stay in cash and you stay in short term bonds and you don't move out, this is a very difficult period of time and I'm afraid - and I don't like to think about it – but this might be the very beginnings of a bear market that could last some period of time," he warned.
      I''m not going to predict how long this correction lasts. My sense is that it's going to go on at least for now-probably at least the rest of October as all the funds have their years finish October 31. Some argue that the market won't bottom until the election. I don't know if Cartman is right or wrong. I know that over the last 5 years the permabears have been permawrong. Still sometimes to quote Rogoff and Reinhart 'it's different this time.'
     I think we have to admit that bulls have become pretty spoiled. We had a terrible bear market in 2008 that saw the market drop from 14,000 on the Dow in November, 2007 to 6500 in March 2009. Yet, overall, since the 3 year bear market of 2000-2002, the market has been up 11 of the last 12 years since. Yet the minute we have 3 weeks of rough selling the bulls act like this is an absurd overreaction.
     However, I won't try to predict this .That's because I'm really not sure. I mean I take Bernstein's point. That claim number was great. Still is it a leading indicator? The last time we had a number like this-in April, 2000-it wasn't a leading but a lagging indicator. Right now the numbers show a preitty good US economy with a weakening global economy. I guess we again get a test of 'bifurcaton'-how long can we have a decent economy surrounded by a troubled world economy?
   Maybe we can continue. Maybe in time we can even save the world economy as has been hoped. On the other hand the US economy is hardly living in a vacuum these days. A weakened Europe and Asia hurts nultinationals which is a sizable part of the US economy. If oil keeps dropping maybe that kills of that nascent fracking industry-though you can argue that all the oil suddenly found in the US enables is a good supply side story that will bring down prices for good reasons-an oil price cut is said to be a 'tax cut.' 
    Time will tell. I know that for now if you're trying to make money, it's on the down side. My only bullish position is now in Alibaba. I believe in Jack Ma. I think this stock has performed very well. It's IPO may be sited as a top, maybe rightly, but just the same, it's performed very well itself since then falling just 7% from it's opening price. My guess is when the market does come back-could be a month, could be three months, could be six months, this will be something you'll be happy to be in. 


Wednesday, October 15, 2014

If the Fundamentals of the US Economy are Strong Why Has the Market Dropped 430 Points?

     I don't mean this sarcastically-it might seem that my point is that of course they aren't strong in view of this move but that's not necessarily my point. The fundamentals of the US economy may well be strong-unlike when John McCain said this during the election in 2008.

     What we can say clearly is that if the fundamentals of the US economy are strong the technicals of the US stock market are very weak. Today the S&P just fell through 1850 with little argument today. After the huge drop early in the day it did rally a little to about 1854 but it has since fallen even further now at 1827.

    The trouble for the market is that the fundamentals of the US economy don't matter anymore, not right now. The thing that has to be understood is that there is a difference between a rising bull market and a falling bear market. This market is not technically in a bear market yet-defined as a 20% drop from the highs-but it has certainly has acted like a bear market in the last few weeks.

   On CNBC a lot of fund managers come on and declare that 'you should be buying when there is blood in the streets.' It makes me think of Keynes scornful dismissal of talk of how in the long run everything will be fine.

    There will be a bottom but is it yet? There is reason for doubts. I note that Jim Cramer is bearish-that's as big a bearish sign as I need. The fund managers always point out that the fundamentals of the US economy are fine failing to note that this is not why the market is selling off-it's about the global slowdown-the slowdown in Europe, the weakness in Germany, the toll the Russian sanctions are taking on Europe-both on Russia but also Europe. Meanwhile, China is not nearly as strong as it was in 2008.

     Today you had everything tanking-the S&P new lows, oil under $80, the 10 Year Treasury seeing it's yield fall under 2%.  So when you hear about the US economy being decent, the selloff is not about the US economy. I don't know what will happen long term. Just right now this is where the market is. There will be a buyable bottom but I don't think we're there yet.

      One question is whether or not you can have a bear market in equities but no recession.

        It seems that in 1987 we definitely did. Right now the US economy does look pretty good. However, there are even here some worries. What about what slower worldwide growth does the the multinationals, what about the bite of a strong dollar, etc.


27-0: Giants, Eli Manning Make Eagles Look Like Nostradamus

       It seems the Giants have given up the Rex Ryan strategy-and not a moment too soon. Last week they and the Eagles talked a very big game and one team backed it up to the hilt and one team didn't do anything right after putting on its cleats.

      The Eagles specifically called out Manning and recalled all the times they had beaten him in the past and they made good. I can't think of any game he and the entire offense ever looked that bad. It really was a perfectly horrible night when you add in Victor Cruz's injury. He will be gone this year and God only knows if he'll ever play at the same level.

      The only good sign is the Giants have clearly learnt their lesson. No more playing the game in the papers. No more Rex Ryan-who always wins the game in the papers and then loses it come Sunday.

      It's just amazing how much a team can change week to week in the NFL. Off Sunday night the Eagles look like the best team to ever play the game-at half time Coughlin groused that 'this isn't the 85 Bears we're playing'-but it might as well have been as the offense was incapable of doing anything the whole game.

     If the Jets' 31-0 loss at San Diego a couple of weeks ago is the worst performance by a team all year-at least by an offense; maybe Tampa gave the worst defense in its 56-14 loss to the Falcons in week 3-this game by the Giants was a close second.

    Some teams can come back from this. The Pats certainly did from their 27 point loss to the Chiefs 3 weeks ago. The Bengals were a lot less impressive following their 26 point loss to the Patriots. Often this is the kind of game that really tests a team, tests a quarterback.

      I should say that Manning's words Monday on the Giants being true to Cruz and giving him the kind of effort he would have been proud of was great. I have to point out that Manning has been here before and come back. I must admit that in this game he and the offense looked about as bad as a QB and an offense can look in the NFL. Still, Eli is the man to come back from a terrible performance. I still remember the first Super Bowl year for him and the Giants back in 2007.

      I always remember a home game against Minnesota in November that year, though. It's hard for a QB to look worse than Eli did that day. He threw 4 interceptions, including three pick 6s-interceptions returned for TDs. The 4th interception was run back to the Giants' 6th yard line and run in on the very next play so that's really 4 pick 6s; I mean that's literally 4 TDs for the other team as the Giants lost 41-13 at home-the margin of defeat was his 4 TDs for the other team.

     Yet what's notable is that he shook it off. He and the team rallied to beat the Bears in Chicago the next week and the Eagles in Philly the next week. After the nightmare game the Giants with him at the helm to win 3 of their next 4 games to clinch a playoff birth-which they would of course ride all the way to a Super Bowl victory-an unthinkable win over the 18-0 Patriots.

     So he and his team have been here before. There could be life after 0-27 to the Eagles. Whether there will be is yet to be determined. He'll start to answer this question in Dallas-certainly doesn't get any easier.

     P.S. The question also is whether Philly was an aberration. It's unreal how night and day he and the offense looked Sunday night in Philly and how he and they looked 2 weeks ago on a Monday night in Washington. Did the Eagles somehow figure out the West Coast offense? After the game they explained that they came in with the expressed purpose of taking away his time-he had so much of it in the 3 straight wins. They did this by covering all his receivers so he had nowhere to get rid of the ball. Of course a big part of the problem was their lack of a running game. Philly's plan worked so seamlessly because there was no running game. Part of this was no doubt the loss of Rashad Jennings. We'll see if the Giants have some answers for this Sunday as Jennings won't be back in Dallas.

   Andrew Williams' first start was rough to say the least. However, even before Jennings went down he had a couple of good games where he lead the team in rushing so who knows? That goes for this entire league. 

2014 Not Looking Like a Wave Election for the GOP

     The GOP always runs based on the past. Every Presidential election for them is 1980 all over again-so they run on exactly the same themes every 4 years. Every Congressional election is 1994 and now 2010.

      The case for a 'wave election' this year is slight indeed. At this point the GOP does have an edge in likely voters but only 2 percent: 46-44.  That's hardly a GOP wave. It does seem that expectations are that the GOP will retake the Senate though this not because of any wave but just because unfortunately, there are a lot more Democratic seats up for election than Republican seats.

      I don't even want to think about a GOP Senate the last few years. However, 2016 should be a lot better as that will be when all those 2010 Tea Party candidates come up for re-election. Still the GOP taking the Senate is not a done deal. It's not a wave-this is 2012 not 2014. Americans polled give the GOP a slight advantage in retaking the Senate and that's probably about right.

     Everything points to the idea that the Dems-and the independent candidate that will likely canvas with the Dems-will end up with 48 to 51 seats in the Senate. So there are four likely numbers-48,49,50,51-and 2 out of 4 will allow the Dems to keep the Senate.

     Even the National Review knows there's no wave election.

     As NR points out, the GOP is using the Romney strategy this year: run against Obamacare run against Obama-the public will vote for the GOP as they want anyone but Obama.  That they learned nothing from their 2012 loss but are still doing exactly the same thing again-and are even thinking of having Romney run again in 2016 shows a party that has learned nothing.

   They have even convinced themselves now that they don't need immigration reform and are simply ignoring the coming demographic problems because right now thanks to gerrymandering they have a lock on the House. At some point reality will come to the GOP. That this party takes pride in never learning anything and running every campaign as if it's a GOP wave election means that the reality check will be particularly cruel when it does hit.

    By the way, one Republican who impressed me this morning was Glen Hubbard on CNBC's Morning Squawk with Joe Kiernan-Mr. Strident Conservative, himself. Hubbard through some mud in Scott Sumner's eyes by arguing that there's nothing much more the Fed can do now but that what we do need is some fiscal stimulus .

   Kiernan did point out accurately that the GOP and Dems differ sharply on what they call fiscal stimulus. The GOP wants cut regulations and cut the corporate tax rate, the Dems want infrastructure projects. Hubbard seems to think that if there is worry about the economy, both sides would come to the table-remember that Hubbard was one of Romney's major economic advisers in 2012.

    So maybe his optimism is hopeful-I'm basing on this on the premise that he obviously knows lots of Republicans and maybe he knows that at least some of them can be reasonable-he certainly sounded reasonable this morning though less so in 2012 when he and Greg Mankiw blessed the Romney campaigns strange budget plan that would cut taxes and cut the deficit at the same time.

    Hubbard argued that they could agree to some kind of infrastructure projects while doing tax cuts for the poor. I've never thought you can make much money assuming the GOP will be reasonable but maybe he knows better than I would. 

The Market Signs Not Looking Good for the Bulls

     My bear case I drew after the market went up 275 on a very good nonfarm payroll number a couple of Fridays ago has been borne out.

        I still wonder if you can have a bear market without a recession. It's a logical possibility obviously, but have we ever had one? I guess the 1987 market crash was one case. We literally fell into a bear market in one day's huge 20% sell off.

         I don't see too many bull signs for the market at this point. I have no problem admitting to you that a big part of validating my bear case for was the fact that Jim Cramer has gone bearish. I was bearish but I found real confirmation in him-as he's anything sooner than a permabear; indeed, you have to give him credit here for proving that he's not a permabull. 

          The technicals have been terrible. The market bulls-like for instance most of the traders on Fast Money-were all telling us that the market would test 1905 on the S&P and bottom there. I wasn't convinced, but even I was shocked that it just went through the 1905 floor without a whimper. The next technical level is 1875 but it fell through that floor pretty easily as well, falling 13 points beneath it on Monday and yesterday's failed hiccup of a rally let the S&P at just 1877. Yesterday's market started out trying to rally sharply but by day's end it looked less like a rally than a cry for help.

          Today the market is down again, certainly not helped by a new headline about another Ebola victim in Dallas-another healthcare worker.

          Based on the way the futures look, the S&P could test 1850 today.

           Bank earnings have been pretty good-Citi had a blowout quarter; still the fact that it closed operations in 11 markets worldwide is another worry; bear in mind that big worry that's been sinking the market is about global growth-rather than US growth which at present  continues to look very healthy.

            We also have oil free falling again. This may be a good thing for consumers and businesses that use oil or who's customers use oil but it's not a good thing for the equity market-according to Jim Cramer a lot of the funds out there use computer programs that automatically sell the S&P when oil prices fall. It appears that at least a lot of the oil companies will really begin to feel the pain if prices drop beneath $80-and Western Texas Crude is right down at $80 this morning.

            So when does the market hit bottom? One big tell is when Cramer says we've hit it. I know there's been lots of pieces that knock him for getting individual stock picks wrong-who can forget the way Jon Stewart savaged him?

            Yet, here, I find him very credible-as he so clearly always wants to be bullish and as the market has acted just like he's said it will during this selloff.

            He's surely right that the market can't really rally until some kind of bottom is found in the commodities space.

            As for oil prices-the conventional wisdom-at least the conventional market wisdom-is that it will magically bottom at $80 just as this same wisdom told us the S&P would magically bottom at 1905.  Who knows-maybe low oil prices could be the new normal? Everyone thinks that OPEC at some point will have to cut production but there are a lot more divisions in OPEC than in the past and the Saudis don't seem worried at this level. Now with Iran cutting prices for Asian customers maybe it won't snap back as quickly as presumed.

            Remember that we had two decades of bargain basement oil in the 80s and 90s and we had very strong economic growth in that period.

            If the oil drop is supply rather than demand based it could be a good thing long term The worry is that all that new oil found in the US won't be drilled for if prices fall too low.