JS Global Macro Notes

[darkhorse]

Global Macro Notes: Forget Copper, What About Oil?

Copper, aka Dr. Copper, has long been known as the "metal with a PhD in economics."

But what about oil? Isn't oil, in some ways, a much more powerful barometer for both the state of the global economy and the general economic mood?

Copper is revered as an economic bellwether because it is used in so many things. From washing machines to vehicle wiring to housing construction, the red metal shows up most everywhere.

But copper is also subject to manipulation more so than oil, in part because of storage factors (copper is easier to warehouse) and in part because the copper market is so small, relatively speaking...

Read full notes here

 

[darkhorse]

Weekend Links Roundup: Sentiment Silliness

The AAII (American Association of Individual Investors) measures small investor sentiment like an oscillator.

A reading of 45% or higher indicates extreme bullish sentiment. At 25% or below you have the opposite, a bearish extreme. The long-run average is 39%.

As TPC reports, small investor sentiment recently went from extreme bear (21%) to near extreme bull (43.9%) in just two weeks. This suggests a few possiblities:

* Small investors = headless chickens.
* Mr. Market throws a wicked curveball.
* Sentiment numbers are terminally squirrelly.
* All of the above.

As TPC points out, when small investor sentiment topped out at 48.5% earlier this year, it came just days before a big market peak.

So what do you do with this recent surge? Do you fade it? Do you take it as a sign that markets could go higher? Do you wait out the spike to see if we plummet back to bearish before the month is out?

Or, my preferred option, maybe you recognize that the majority of sentiment poll data is just noise in the first place, and stick to your logic- and conviction-based trading plan.

Go here for 09-12 links roundup

 

[darkhorse]

Macro Comment: Record Long-Term Unemployment Means No Consumer Recovery

When personal consumption drives 70% of U.S. GDP, you don't need the consumer to "die" to create a problem. You just need a sustained trend of hunkering down and cutting back.

Think occupancy rates in Las Vegas hotels. The typical Vegas hotel has a minimum occupancy threshold just to break even. For serious pain to occur, occupancy rates don’t have to hit zero. They just have to fall below a relatively high "covering costs" point -- like, say, from 70% to 65%. The embedded leverage in a high turnover business model quickly goes toxic when black ink turns to red.

This non-linear dynamic also applies to overinflated expectations (and accompanying valuations). When a number comes in below trend, it doesn’t have to be a goose egg to court disaster. Similarly, a reworking of the U.S. GDP mix to reflect permanently reduced consumption levels -- Americans spending less money on "stuff" -- could constitute a major paradigm shift.

Read full comment here

 

[darkhorse]

Gold and Gold Stocks: Jail Break!

GLD and GDX blasting through the ceiling today...

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[darkhorse]

Global Macro Notes: Lemmings in Search of a Cliff

The psychology of hope is toxic at this point because 1) "hope" is not a strategy, and 2) realism and caution are more important than ever in an extremely dangerous macroeconomic environment.

Trends do not unfold in perfectly linear fashion. Mother Nature doesn't work that way. If one scatter-plots the progression of data points that tell an economic story -- thus fueling a long-term secular trend -- one will see regular blips and changes that appear to deviate from the norm, putting the major plot line in temporary doubt. This is perfectly normal.

Except, when investors are prone to unrealistic expectations, those blips become an excuse to go on extended hope jags. In secular bear markets, fighting general conditions is an expensive habit. Wall Street is addicted to this habit by design.

Read full notes here

 

[darkhorse]

Weekend Links Roundup: Ready to Crush It

...Of course, the market could grind yet higher from here. And if it does, that's perfectly ok.

We can play the grind-it-out game as well as anyone... and there are multiple areas of this market that can accommodate modest long-side conviction, overlaid with constructive price action and supportive long-term fundamentals.

But the real juice, the real moxie at this juncture, is in the downside play... catching out the punters and the V-ers leaning the wrong way with the second nuts, squinting 'til their eyeballs hurt trying to see evidence of a recovery that's really just a mirage.

Go here for 09-19 links roundup

 

[darkhorse]

Global Macro Notes: Technicals and Market Tone, Yes -- Fundamentals, Not So Much

Monday was a blowout bonanza for the bulls. Stuff was surging left and right. The S&P blasted through range-bound resistance levels. The Russell 2K went nuts. The Q's, which are 20% weighted towards the mighty Apple (AAPL), look like a moonshot.

For the moment, the schizophrenic investor shift to multi-year highs in AAII bullish sentiment seems fortuitously timed.

And the big ol' breakout came on news that the recession is "officially" over, confirming that the market tone is strong (via vigorous bullish response to positive news).

So, yay.

Except for a couple problems:

* This action has more than a whiff of 'manic euphoria' to it.
* The speculative market leaders are at nosebleed heights.
* Top down risks are elevated and growing.
* For the most part, the fundamental drivers are just not there.

Full notes available here

 

[Optionpro007]

Quote from darkhorse:


* For the most part, the fundamental drivers are just not there.

[

Comment Mr Sparrow.

I wasn't trading at the time but if I am not mistaken fundamental drivers were missing at the time of Greenspan's irrational exuberance testimony and the markets went up for another 3 yrs.

I think fundamentals work in true free markets, where the balance of supply and demand is natural. Markets that are contaminated by policy or unnatural human intervention can render fundamentals a liability.

 

[darkhorse]

Quote from Optionpro007:


I think fundamentals work in true free markets, where the balance of supply and demand is natural. Markets that are contaminated by policy or unnatural human intervention can render fundamentals a liability.

The market can do strange things at any time. Fundamentals are a necessary (but not sufficient) input for having a meaningful degree of conviction on a trade. The impact of monetary policy and govt manipulation is itself a fundamental input, virtually always present, just to varying degrees.

 

[darkhorse]

Weekend Links Roundup: The Tepper Surge

On Friday, hedge fund legend David Tepper did an incredibly rare interview on CNBC.

The thrust of the interview was a "heads you win, tails you don't lose" argument for why equities are a buy:

* If the economy gets better, that's bullish and equities win.

* If the economy doesn't get better, the Fed does more Quantitative Easing -- and equities still win.

* The "Bernanke Put" has now officially replaced the Greenspan Put.

* Many of the things that could have been bad -- eurozone risks, China risks, Japan risks -- turned out not to be so bad.

* The U.S. is not like Japan because the Federal Reserve can still buy mortgages, thus pushing mortgage rates down and creating new breathing space for homeowners to spend.

Wall Street really dug the perspective, as evidenced by Friday’s surge... which, no doubt, was the driver for doing the interview in the first place.

So now we are back to the "sunny with a chance of earthquakes" stance -- with the Fed providing the sunshine -- and (supposedly) no earthquakes in sight for the foreseeable future.

Go here for 09-26 links roundup