Capitalogix

Chart Showing Home Price Changes in Various Markets

There has been a lot of talk about housing lately.

Some are predicting a second dip.

 

What does the data show? 

Here is a very nice visualiztion that shows the monthly percent change of home prices in various markets over time.

 

Notice, that things got better after March of 2009 ... but have been slipping since last summer.

Related articles

• The Housing Decline in Perspective (pragcap.com)
• Home Prices in U.S. Dropped 5.5% in First Quarter, FHFA Says (businessweek.com)
• Depressed Housing, Stressed Community Banks Will Hurt Economic Growth (minyanville.com)

Here Are Some Links Worth Reading This Week

These are a few of the links and items that caught my eye recently.

 

Since this is Memorial Day, here is something to think about.

 

Business Posts Moving the Markets that I Found Interesting This Week:

• Has George Soros Signaled the End of Gold and Silver's Bull Market?  (SafeHaven)
• Sony Posts a $3.2 Billion Loss - Its Third Straight Annual Net Loss.  (Reuters)
• Silicon Valley's New Tech Bubble: Has Irrational Exuberance Returned?  (Economist)
• U.S. Falls Behind Overseas Markets as Stock Listings Down 43% Since 1997. (WSJ)
• Is the U.S. Postal Service Near Collapse?  (BusinessWeek)

Lighter Ideas and Fun Links that I Found Interesting This Week

• Frontline Leadership: How Cadets Learn to Be "Clutch" & Succeed Under Pressure. (HBR)
• Stephen Fry on "What I Wish I'd Known When I Was 18". (Vimeo)
• Why Emotional Pain Can Feel Like a Punch in the Stomach. (BodyOdd)
• E-books Overtake Print Book Sales - Is This the Tipping Point? (CNet &CSM)
• Do You Know the States? Semi-Mindless, But Fun, Puzzles. (V1 & V2)

The Bulls May Be Hiding - But the Bears Are Hibernating

Despite some early selling, the Bears were not committed their positions - and prices held up well again last week. Going into the long Memorial Day weekend, it didn't make much sense for Bears to press their bets without a selling catalyst.

Still, the mood seems 'gloomy'. 

The S&P 500 is down less than 3% from its recent closing high.  Nevertheless, based on the latest sentiment figures from the American Association of Individual Investors (AAII), you would think a lot more damage had been done.  Bespoke reports that Bullish Sentiment is at its lowest level since August 2010, and a far cry from the 60%+ levels we saw as recently as February. 

 

If you have contrarian instincts, you've got to be bullish right now.  Remember, a few bulls is enough to push things higher if there are even fewer bears willing to press their bets.

 

A Public Service Reminder From the Bear's Den.

Of course, not everyone is a contrarian.  Some see smoke and warn of fire. 

With that in mind, here is a list of the 7 major risks David Rosenberg sees brewing:

1. China hard landing (PMI down to 51, perilously close to contraction mode)…equity market may have begun to price in some probability of such.
2. Contagion sovereign credit risks in Europe (the rating agencies have already begun to take action against Spain, Italy and Belgium).
3. Countertrend rally in the US dollar – this is crushing the risk-on carry trades: the unwinding of net speculative short positions in the dollar and long positions in the Euro seem to have further to go based on the latest CFTC data.
4. Deepening recession in Japan – still one of the world’s largest economies; spill-over on global production schedules still to be felt.
5. US fiscal policy is becoming more radically austere at all levels of government.
6. The end of QE2 will be a very big deal given the 89% correlation between the Fed’s balance sheet and the movements in the S&P 500 over the past two years.
7. US leading economic indicators are rolling over.  The Conference Board Index fell in April for the first time since June 2010; the coincident-to-lagging indicator is down three months in a row; and the ECRI smoothed index is down now for four straight weeks, a streak last seen in July 2010.

Source: Gluskin Sheff (with a hat tip to Pragmatic Capitalism)

Related articles

• Bullish Sentiment Now Severely Depressed (pragcap.com)
• Looking Fairly Bullish (by Springheel Jack) (slopeofhope.com)

A Look at the Market: So Much Seems Changed, But Has It?

Image via CrunchBase

Pundits are calling for a new tech bubble. 

IPOs are going off at the top of their ranges.  LinkedIn now has the highest Price/Revenue ratio of any company, anywhere.  At LinkedIn's valuation, Apple would be worth over $3 Trillion dollars.

So, clearly all is well in the financial world.  Right?

The Canary in the Coal Mine?

Greek stocks tumbled to new 14-year lows last week, as Greek bond yields rocketed to new all-time highs.

The risk premium says something.

The Daily Reckoning asks why investors are fleeing Greek stocks and bonds faster than a chambermaid flees an IMF Director’s hotel room? 

With tongue-in-cheek (and based on 'exhaustive' research), they conclude that investors prefer the securities of solvent entities over those of insolvent entities. But note investors cannot always differentiate correctly between solvent and insolvent.

So, will a worsening sovereign debt crisis in Europe harsh our mellow? 

Have the underlying conditions really changed?

Related articles

• All for One Euro and One Euro for All? (investorsinsight.com)
• Europeans Are Turning Their Backs On Austerity While Officials Continue To Deny Reality (businessinsider.com)

Here a Few Links for Your Weekend Reading

These are a few of the links that caught my eye.

Business Posts Moving the Markets that I Found Interesting This Week:

• De-Bunking Economic Facts: The Crisis Suggests a Staggering Lack of Knowledge. (BW)
• Doug Kass' Still Timely Contrarian Reminder. (TheStreet & Minyanville)
• Starbucks CEO, Howard Schultz, Says "The Commodity Rally Is Fake". (PragCap) 
• Number-Crunchers Crunched: Uses & Abuses of Models. (Economist)
• BRIC Wall: Is China's GDP Growth-Per-Head About to Slow Down? (Economist & FT)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Google Everywhere: As Google Grows, How Much Is Too Much? (Wharton)
• CNN vs. Other News Site: Comparing What Gets Covered. (Atlantic)
• Real-Time World Statistics.  (Worldometers)
• Gaming the Financial-Aid System to Outwit the College Bean-Counters. (WSJ)
• 5 Lessons from Sir Isaac Newton.  (DumbLittleMan)
• More Posts with Lighter Ideas and Fun Links.

Using the Inflation Rate as a Trading Filter

Wouldn't it be great if a simple number told you whether it was safe to bet on the market going higher?

Crossing Wall Street posted a chart that suggests the stock market does very well when the monthly inflation rate is under an annualized rate of 5.3%.  Conversely, the market has done poorly in months when inflation is above that 5.3% annualized level.  The chart shows the the monthly return above and below that level of inflation.

The data goes back to 1871; and it is surprising how well this relationship has held up over 140 years. During this period, monthly inflation has been above the 5.3% annualized level about one-third of the time.

Historically, when inflation was below 5.3%, the stock market has had an annualized after-inflation gain of 9.59%. And when inflation was above 5.3%, then the stock market has had an annualized loss of 8.15%.

 

Did Inflation Cause Returns to Change?

 

Computers are great at finding the optimal point for a system to trade based on historical data.  Technical traders call this "curve-fitting", and have learned to be wary of coincident variables being confused as causal variables.  That is a fancy way of saying that the relationship between inflation levels and stock market returns might be a great way to "describe" what happened; however, it doesn't prove that the inflation level "caused" the returns to go up or down. It also doesn't prove that inflation didn't cause the returns.

 

Nonetheless, 140 years is a long time sample ... and inflation rates affect people reasonably uniformly ... and the stock market can be looked at as collective measure of the fear and greed of the population.  So, using the inflation rate as a trading filter seems to be a reasonable idea worthy of further testing.  What do you think?

 

With many market watchers expecting the inflation rate to rise, this is something to consider.

 

Related articles

• Returns in Different Inflation Environments (pragcap.com)
• Are We Really On The Brink Of High Inflation? (businessinsider.com)

Here a Few Links for Your Weekend Reading Enjoyment

I'm going to my son's graduation from Duke University this weekend.

 

Business Posts Moving the Markets that I Found Interesting This Week:

• Does Venture Capital Data Show Signs Of Bubble? (Fortune)
• Zogby Say 37% of Americans in Job Paying Less than Before. (TheDaily)
• Krugman Warns Several Key Indicators Flashing Yellow (NYTimes)
• Keynes And Hayek Square Off For Round Two of Economist Rap Battle (VIDEO) (HuffingtonPost)
• Bullishness Waning: This Huge Contrarian Signal Might Send Stocks Higher. (BusinessInsider)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Who Should You Hire? Attitude Often Trumps Aptitude. (AONetwork)
• This Graph Shows the Growing Problem with Higher Education. (Feldstein)
• Infographic: U.S. Military Spending Versus Foreign Aid. (Good)
• Erasing Traumatic Memories from War Veterans & Victims. (BigThink)
• Anti-Love Potion: Does Porn Really Decrease Desire? (PsychToday)
• More Posts with Lighter Ideas and Fun Links.

Markets Testing New Highs - Are You Bullish?

Here is a video of a dog that wants to play fetch with a statue.

 

 

This playful dog doesn't understand why the statue won't throw the stick, but it keeps trying. It reminds me of the games the market is playing to entice someone to play.

The Markets Are Testing New Highs.

While the S&P 500 is still below its high from October 2007, that NASDAQ Composite flirted inches from its highest close since December 12, 2000.

So, Are You Bullish?

We hear a lot about how investors are overly optimistic ... but a look at the latest numbers from AAII shows that bullish sentiment has dropped to under 31%.  Again, we are near highs.  That isn't overly bullish; frankly, it seems a little strange.

Normally, I would take the lack of bullishness as a contrarian indicator (meaning crowds are often wrong at turning points ... so the lack of bulls would indicate a push higher was likely).  However, I'm starting to think that there is little "real" investor capital at risk in the U.S. Equity markets right now. 

When the real money wants to play, I'm not sure it will like the game.

 

Related articles

• Investors Turn Even Less Bullish As Stocks Decline (bespokeinvest.com)
• Bearish Sentiment Hits 8 Week High (pragcap.com)
• 2 emails and zero calls, Street still bullish (ritholtz.com)

A Few Ideas on Why the S&P 500 Has Held-Up So Well

Recently, it has seemed like the market was looking for a reason to go up. Bad news was taken as a buying opportunity.

There was a change in market sentiment last week. The market finally found reasons to sell-off.

The move down was relatively minor and quite orderly. The S&P 500 is sitting comfortably in a support zone. The following chart shows that the move down did not come with panic selling and volume remained light.

 

The move back to support burned-off some of the excess exuberance. So, on the next push down, let's see if sellers get another bear trap sprung on them with a pop higher.

As I've said before, recently, if selling opportunities don't tempt sellers ... Then the market will simply get pushed higher again.

Remember, a trend is in force until it's reversed.  The broad equity indices are still behaving remarkably well. It could be a meaningful sign, or it could simply be a sign that there's a lot of money on the sidelines or in other markets.

For example, last week was anything but orderly in the silver market.

Here a Few Links for Your Weekend Reading Enjoyment

Do you know what this is a picture of?

 

Well, it isn't a Mother's Day present.  It represents my hope that you had a fun Cinco de Mayo.

 

Here are some of the links that caught my eye or attention ... hope you find something interesting.

Business Posts Moving the Markets that I Found Interesting This Week:

• It's Harder To Get A Job At McDonald's Than It Is To Get Into Harvard. (BusinessInsider)
• Is Apple Going To Be The First Trillion-Dollar Company? Here's the Short List. (VentureBeat)
• China's Pushing the Yuan to be the Center of the New Financial Ecosystem. (WSJ)
• Will Big Data Make Stock Exchanges Unnecessary?  (O'Reilly)
• The Wall Street Journal Launches a WikiLeaks Competitor, SafeHouse. (Atlantic)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Dalai Lama Suggests He Condones Osama Bin Laden's Killing as 'Justified'. (LATimes)
• Some of Osama Bin Laden's Home Videos Released by Government. (HuffingtonPost)
• YouTube of Donald Trump "Gently" Expaining How to Handle Rising Oil Prices. (YouTube)
• 4 Infographics About Online Trends, Internet Usage and Social Media. (AnsonAlex)
• Mental Disorder Posters: See If You Can Guess Which Is Which. (AdaptCreative)
• More Posts with Lighter Ideas and Fun Links.