Stock Market Bubble- Market Update November 15th, 2019
We've had the dot.com bubble, we've had the housing bubble. Some people call this the everything bubble. We have a lot talk about this week. There's China, we've got the Fed. But where is the consumer??
Let's begin with the Big Charts. Clearly we are still within a secular bull market. Looking inside that you could have bumps right? Just last year you go back to 14/16. Things were fairly flat. But where are we today as far as the markets and our signals. Obviously we have broken out . How far have we come? You know, not that much. I went back to last year all the way to yesterday we are up 4 % year over year. Not a huge run up. Yes this year has been big, but people of course have forgotten about that ugliness.from last year.
What do we see right now? Signals are all positive. Short term, mid-term, long term, for obvious reasons. With that being said I think that we're starting to see overbought conditions. Why??? FOMO- the fear of missing out. That's what has driven this market.
Earnings have not been good, we know that. The China deal is not happening. I will say it again, FOMO! Relative strength over a 10 day is clearly overbought and starting to get a little bit exhausted. We are starting to see it getting close to a negative turnover on momentum that's going to push things down. So at this point, yes we broke out again today. I have no idea why nothing is going on. The market gives us what it gives us.
Right now we continue to be positive. But again.. Mr. Michael why are you always so negative? Why are you a bear? I'm not, we are fully invested right now. I'm just in other sectors.
Here are your new highs minus new lows on the New York Stock Exchange. This is obviously a much broader view, and you can see the numbers today. 150 yesterday we only had 68 new companies. Again the histogram, that's what I'm looking at. That represents highs minus lows. Look at last year when we were hitting all time highs you just had so much strength beneath the market. That is just not existing right now.
What we're showing here is advanced decline percentage. These are breaths for us. We're looking for a positive or negative to determine where the market's are going. We are hitting all time highs and we're not getting any thrust in the S&P, mid cap, or small cap. That's why it's very difficult for me to believe in what is happening right now.
We are positive with a negative bias going forward. We will follow that as we go forward.
What about bonds? Have we seen any change here? Yes we have. Bonds have been going back and forth.
The number one sector right now being shorted are bonds. We like bonds, we like bond proxies . We hit the high end of our range, Then there is opportunity to go back in. Now you can see we're going down again and you'll see the impact of that.
We've talked about yield spreads, 10 year minus two year. So this idea that a recession is coming when it inverts is not on the table right now. We don't see a recession, we see a slowdown. To recap , we talked about bonds going down, we've been really been big with bond and bond proxies.
Looking at utilities, clearly you have a bullish trend line. You can see it and you have a little bit of a pullback within that bullish trend line. This is where opportunity presents itself. When we have new clients coming in, maybe we don't have a full position yet. This is where we add. This week was an example of a good opportunity. We are seeing a lot of our bond proxies moving forward this week.
Let's switch gears and talk about Gold. Gold goes up! That's exactly what happened. Over the last month when Treasuries went up, gold went down. We are starting to see a little bit of a shift on that. We have a nice little bump back up. This is one of our bigger holdings, I like gold right now. Gold has been a nice place to be. Not a bond proxy but we've talked about this and having patience.
Health care, It kind of went nowhere for quite some time, we waited... and we waited. There is your breakout.... boom! A little bit of a pullback, pullbacks become opportunities. If you're not in it, we are not quite overbought yet but right now we should probably anticipate a pause at these levels, and see if we can grind out to the next level.
Inflation, Forget about what the Fed is saying. We saw it this week. Here is your CRB Index, a leading indicator. We've seen this go up. How do you look at that as an opportunity as it pertains too investing? One of our areas that we like is oil. You kind of see a reverse head and shoulders. But more importantly, it's starting to come out consolidating, this is not uncommon. I like where it's sitting. Volatility is pretty low and we're waiting for that next surge up. Oil is a nice place to be.
Natural gas , looking ugly! It found a bottom, and came back up today. Lumber, that is an inflationary product. we're seeing that go up. Cocoa, there is a lot of other sectors that we look at as it pertains to inflation where you can take advantage of in this move.
What keeps me up at night. We have been talking about this, you're not seeing a lot on CNBC. I don't get it, thats crazy to me! When we stopped quantitative easing they're letting things go down. Looks nice right, we're getting this off the balance sheet that represents seven hundred billion dollars and that's a good thing. Since September 26th they have put back in two hundred and ninety billion dollars. Folks what's driving the markets?? The Fed has been pumping liquidity since September....money it's out there! liquidity, the market craves liquidity! That is what's happening behind the scenes. If You watched the Fed the other day... "oh we just need more growth." You're pumping all this money in the system and it's a farce. It really concerns me. This is quantitative easing. They're not calling it that but that's what it is.
Let's look at the impact, latest GDP rate right now . They have pumped 290 billions into the market and this is all we're getting out of that.
I took GDP and the Fed balance sheet, GDP is in blue, Fed balance sheet. What has been the impact of this. Look where we started after the crisis, we drove up, went sideways, then down. The Fed pumped a ton of money. Four trillion dollars. It's ridiculous how much money has been put in. If the Fed wasn't doing this, Imagine where the market would be. This does keep me up at night, because at some point the Fed is going to say we're going to continue to put money out there which is not a good thing, or they're going to stop and then we know what could happen. The next thing that keeps me up at night, is fed surplus, as a percent of GDP. We are at the highest number four negative four point six one percent in non war time. That's a big thing. The Fed is just screwing up.
It's all about China right. Every time we're going to get a deal there's no deal. If there is a deal in China how come their market stinks. Look at the facts, because that's what I live on. We have one, two Greens, they are actually Japan. Look at China, I mean minus 10% -7%. Retail, survey jobless rate. It is ugly right now in China there is not going to be a deal. Look around that area, Shanghai. Shanghai is down. Pretty ugly! If China is doing well you think Shanghai would be doing well.
Copper is big, that shows growth. You need copper for growth. It peeked last year, then went Lower and lower. If copper is not moving higher you know China is not as well.
We have as we like to call it Dr. Kospi. The Kospi, South Korea. Ugly right!?! China is not going to make a deal. What is this all about?? You ready? Soy beans! This is this first deal. Now here's when a trade war started that cost the soybeans. This Just came out this morning from Bloomberg. They had 50 barrels of soybeans bought from the US today that's one tenth of normal. You think a deal is still coming?? NO! Stop this market. Why do they react to this silliness.
Last, the consumer. Where's the consumer right now. Consumers a big part of the market. You see what's happened this week when you're looking at earnings, low end retailers are doing very well right now, they're looking for bargains. They're saving more money. That's good right? No, if they're saving more they're spending less. You have auto sales, Look at that trend, pretty obvious the trend is not your friend, it jolts job openings and labor turnover. It's Going down as well, so is the consumer. This is a new chart I put together.
Continuous claims on unemployment. The grey is recession and you can see we are going higher. We just broke right zero, each time that's happened in the past, Not saying it is, but I'm watching this. These are the things that continue to lurk below.
Fear and greed, where are we? Two weeks ago at 42. 84 this week. We were in 91 last week. Everyone is greedy.. FOMO right!?!
All indicators are positive. Personally I feel we're overbought, That puts me in a cautious stance. I think there are other opportunities out there. Thanks for reading!