Capitalogix

The Market Rally Seems Longer Than It Really Has Been

Is This Market Rally Too Overbought to Trust?

While the optimists, pessimists and realists argue about whether the rally has gone too far (or is 'fake' because of government intervention) ... opportunistic traders have enjoyed the ride.

So how far and long has this rally really come?  Despite all the worrying, objects in the rear-view mirror may be closer than they seem.

The graphic (below) from Chart of the Day, puts over a century of market rallies in context.

As the Dow Jones Industrial Average flirts with post-financial crisis rally highs (and the 13,000 level), it may seem as if the current market rally has grown long-in-the-tooth ...

Nonetheless, history says rallies can go much longer and higher than this.

To provide some perspective to the current Dow Jones market rally that began back in early October 2011, all major market rallies of the last 111 years are plotted on this chart. Each dot represents a major stock market rally as measured by the Dow.

 

 As the chart above illustrates, the Dow has begun a major rally 28 times over the past 111 years which equates to an average of one rally every four years.

Also, most major rallies (78%) resulted in a gain of between 30% and 150% (29.8% to 150.5% to be exact) and lasted between 200 and 800 trading days (9.5 months to 3.2 years) -- highlighted in this chart with a light blue shaded box.

As it stands right now, the current Dow rally (hollow blue dot labeled you are here) would be classified as well below average in both duration and magnitude.

Interesting.

Related articles

• SPX Update: Why This Rally Is One for the History Books (minyanville.com)
• The Rally Is Going Into Overdrive Right Now (businessinsider.com)

A Quick Look at the Where the S&P 500 Sits

Sometimes reading a chart is simple. 

Here is the obvious question: Will the the S&P 500 Index be able to stay above its 2008 to 2012 resistance line (marked by red arrow on this weekly chart)?

 

 

The recent highs (at 1370) are directly overhead.  A move above that would be decidedly bullish.

 

Nonetheless, the recent rally is extended and happened on low volume. 

Bears will note that there are many negative divergences, too.  

However, the key indicator is the price action ... and it has been un-relentingly higher (despite many logical reasons for it not to have happened).

Related Articles

• Some Divergence Here (by Springheel Jack) (slopeofhope.com)
• SPX Update: Do-or-Die Week for the Big Picture Wave Counts (minyanville.com)
• Keeping an Eye on NYSI and S&P 500 Index (slopeofhope.com)

Funny Video: Using "S*** Happens" to Explain Economics

You don't normally see an economist do a stand-up routine.

And you could assume that economist Yoram Bauman doesn't usually swear while giving a speech ... but it's unavoidable in this routine ("S*** happens: the economics version").

 

 

This take-off on the old joke about explaining world religions (using the same construct) was filmed at the 2012 American Economic Association humor session.

It's even a little funny that the AEA had a humor session.

Click here for more Stand-up Economist videos.

Related articles

• What's so funny about money? (newscientist.com)
• Interview with Stand Up economist Yoram Bauman (calculatedriskblog.com)

Social Media Explained with Donuts

So much social media ... so little time.

This photo of a whiteboard (titled "Social Media Explained") went viral on many social networks last week.

So, chances are you've seen it.  If not, it's worth a glance.

Simple, clever, and so true.

 

 

For me, Twitter is a serendipity engine;  I dip into it and hope to find something cool. LinkedIn is a bit more serious and I often find a link worth spending some time reading.  While Facebook is a guilty pleasure, where I browse to catch-up on what people are doing and to get a glimpse into their lifestyle and interests.  The rest ... (and texting) ... not so much.

What about you?

Related articles

• 10 Social Media Tips for Bloggers (mashable.com)
• Your Friends Are Now Your Customers (blogs.hbr.org)

Why Did the Clint Eastwood "It's Halftime America" Ad Cause Such a Stir?

Did you see the Clint Eastwood "It's Halftime America" video that ran during halftime of the Super Bowl?

It starts with Clint Eastwood's voice and an image  of a lone man casting a big shadow as he walks down a darkened football stadium corridor.

 

"It's halftime ... Both teams are in their locker room discussing what they can do to win this game in the second half. It's halftime in America, too."

 

 

 
Well, it got noticed ... and it's causing a controversy in some circles.

So much so that SNL made fun of the issue in this spoof.

 

 

 

"I don't care if Obama runs the ball, or Romney throws a touchdown, or Ron Paul kicks a field goal with his tiny little chicken legs," Hader-as-Eastwood warns. "I tell you right now, though, I ain't puttin' Santorum in the game. He can stand on the sideline doin' cheers in his little sweater vest."

 

Sometimes it seems that we become so focused on pointing fingers and finding fault that we forget our real purpose.

To paraphrase Freud, sometimes an ad is just an ad. 

And in this case, it could simply be an inspiring ad paid for by Chrysler (perhaps to say " we faced some hard times, but showed resiliancy and resolve ... and the best is yet to come.")

On a related note, check-out Bob Buford's book, Halftime: Moving from Success to SignificanceHalftime: Moving from Success to Significance. It is about making the second half of your life better than the first.

Buford reminds that in order to have a better second half, you must first figure-out what you
want.

In Halftime, Buford focuses on 'transition'---the time when, he says, a person moves beyond the first half of the game of life. It's a time of revitalization and for catching a new vision for living the second half, the half where life can be lived at its most rewarding. Halftime doesn't have to be a time of crisis. It can be a catalyst for purpose, impact, and growth. It can be about setting a new course away from mere success to true significance---and something better.

This message applies to the market and our economy as well.  What if we are half-way there?  What do you really want?  Where are you committed to go?  What adjustments are needed?  What do you want to do more of? What do you want to do less of?  What do you need to start doing?

It's half-time, and the best is yet to come.

 

Related articles

• Clint Eastwood: I am not 'politically affiliated with Mr Obama' (thegrio.com)
• 'Halftime in America': Clint Eastwood Hates Car Company Bailouts, but Loves Car Company Commercials (minyanville.com)
• A Better "Halftime In America" Commercial (zerohedge.com)

Some Links to Browse This Weekend

I don't know about you, but the Euro thing doesn't seem "done" to me ...

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• How Will You Use Your Leap Second? (NYTimes)
• Big Data: Why All the Fuss? (InformationWeek)
• Kurzweil On Prediction Accuracy: Adjusting to Change & Neuroscience. (Wired)
• NASA's 'Impossibly Beautiful' Photo of Earth. An Ultra High-Def Update. (TheWeek)
• Dallas Opera Will Simulcast Its Performance at Cowboys Stadium. The fat-lady really is singing. (WFAA)

 

Trading Links:

• How to Play the Five Big 'What-Ifs' Affecting the Markets. (WSJ)
• How Long Can the Stock Market Forget About the Pain? (NYTimes)
• Spotting Winners Is Not Always Rational. (FT)
• Why 2012 Will Be the Year of the Entrepreneur. (Moneyland)
• Will Collecting State Taxes Slow Amazon Down? (Barrons)

Ten Links for Your Weekend Reading

A sprinkling of dark humor ...

 

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• Short-Term Thinking Is Often Our Biggest Problem: 3 Ways To Fight It Now. (FastCo)
• China’s Push to Put Astronaut on the Moon. (FT.com)
• There’s an Ape for That: Orangutans Use iPad to Communicate. (TheDaily)
• Take Two & Call Me In the Morning: Discovery of an Exercise Pill? (TechReview)
• Guys vs. Cartoon: It's not for knowledge that we went to college ... (Video)

 

Trading Links:

• Why is the Economy Doing So Well ... And Can It Continue? (Inc)
• Forecasting Toolkit Challenged by the ‘New Abnormal’. (FT)
• Update on Global Food Commodities. (Stratfor)
• The Visible Hand: Is State Capitalism a Viable Alternative to Free Markets? (Economist)
• What You Can Learn From Mitt's Tax Return. (WSJ)

More Ways to Visualize Big Numbers, Like a Trillion

Back in the 1960s, Illinois Senator Everett Dirksen famously quipped, "A billion here, a billion there -- pretty soon, you're talking real money."

To get a sense of how Trillions currently are discussed in Congress, watch this.

How quaint ... Recently, Trillion has become the new billion; especially when we're talking about government debt, government budget, and the budget deficit.

So, let's put a "Trillion" in better context.

What follows are a few creative ways to look at the U.S. government budget and what's happening to our national debt.

1. The U.S. Government Budget Compared to an American Household


This has been making the rounds.  I saw several copies on social media sites, and it puts things in a format most of us can understand easily.

 

 

 

I'm not sure of its source, but you can also see a version of it in this video showing CNBC correspondent, Rick Santelli, explaining the government budget and the budget deficit.

2. U.S. Government Debt Illustrated in Pictures

The national debt clock continues ticking.

Here is what the $15 trillion U.S. debt looks like when it is piled up in stacks of $100 bills.

Do you see the the tiny-in-comparison tractor trailer?  Squint, and you can see the barely visible human in front of it.

 

 Well, that put things in perspective.

 

So does this video.

 

 

 

You don't need the national debt clock to get a sense how big the deficit is becoming, or how hard it is to start reducing it meaningfully.

3. Or If You Just Like Simple Math...

The circumference of the earth is 24,738 miles.

If laid $15 trillion one-dollar bills end-to-end, it would be 1,444,000,000 miles long ... Enough to circle the earth's equator 58,390.5 times.

If you were to drive around the earth in your car 58,390.5 times at an average speed of 70 mph non-stop, it would take you 2,385 years to finish.

Click here for some other facts about "a trillion" ... or here too.

So What Does it All Mean?

These are some big numbers. But as Nicholas Vardy points out, the focus on U.S. debt ignores once crucial factor -- the value of the balance sheet or accumulated wealth of the United States. That figure probably stands between $150 trillion and $200 trillion. That amount is 10- to 13-times the size of the current U.S. government debt.

In other words, the U.S. is not going to the poor-house anytime soon.  But the trends are sobering, nonetheless.

Related Articles

• 34 Shocking Facts About US Debt (lewrockwell.com)
• Biggest Holders of US Government Debt - Yahoo! Finance (opsudwinger.wordpress.com)
• It's Not What You Owe, It's Who You Owe (reason.com)

Here Are Some Interesting Links for Your Sunday Reading

While traveling last week, I logged on to Facebook and found this gem from a friend.

Between What I think, What I want to say, What I think I said, What I have really said, What you want to hear, What you think you hear, What you really hear, What you want to understand, and Understanding, there are 9 ways to be misunderstood.

Well said; but still not sure I understand ...

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• Scott Belsky on How to Avoid Idea Plateaus. (BrainPickings)
• Ten 100-Year Predictions That Came True. (BBC)
• The Next Great Motivational Speaker. This kid was a hoot. (Video)
• Did Iran Really Send the U.S. a Toy Model of the Captured Drone? (Slatest)
• Top 1% of Mobile Users Use Half of World’s Wireless Bandwidth. (NYTimes)

 

Trading Links:

• At Davos World Economic Forum, Fear of Global Contagion Dominates. (HPost)
• Why Economic Growth Is Not Imperative. (BigThink)
• Stratfor's Annual Forecast 2012. (Stratfor)
• China Outshines US as the Top IPO Venue. (FinancialTimes)
• Emerging Markets Represent the Future for HFTs. (AdvancedTrading)
• Mohamed El-Erian: Investing in a 'Fat Tail' World - WSJ.com. By pushing interest rates to very low levels, central banks are pushing investors out the risk spectrum. (WSJ)

Explaining Modern Finance and Economics Using Booze & Broke Alcoholics

Here is little story that makes it easy to understand what's been going wrong in Europe (and perhaps modern finance in general). 

From reszatonline

Helga is the proprietor of a bar.

She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. 

Helga keeps track of the drinks consumed on a ledger (thereby granting the customers’ loans).

Word gets around about Helga’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Helga’s bar. Soon, she has the largest sales volume for any bar in town.

By providing her customers freedom from immediate payment demands, Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Helga’s gross sales volume increases massively.

Ahh, an opportunity.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Helga’s borrowing limit.

He sees no reason for any undue concern, since he has the debts (of the unemployed alcoholics) as collateral!!!

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS.These “securities” then are bundled and traded on international securities markets.

Naive investors don’t really understand that the securities being sold to them as “AA” “Secured Bonds” really are debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb! And the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

Perhaps this isn't a great idea?

One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Helga’s bar.

He so informs Helga.

Helga then demands payment from her alcoholic patrons.

However, her clients, being unemployed alcoholics, cannot pay back their drinking debts.

Since Helga cannot fulfill her loan obligations, she is forced into bankruptcy.

The bar closes, and Helga’s 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The fall-out?

The suppliers of Helga’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Helga’s bar.

Feel like having a drink?