***Official*** 2016 Stock Market Thread

[dighn]

So, either the market isn't afraid of interest rate rises anymore or they don't believe it's going to happen. On the other hand, the market barely budged in December -- Christmas? -- before tanking hard in January. And Brexit is happening in just over 3 weeks. This gonna be a very exciting month...

And a big bank in Canada is getting scared...



http://www.news1130.com/2016/05/31/bank-mortgage-metro-vancouver-scotiabank/

Not in the mood to find an article, but Canada's big banks just reported over the past week or two. Most of them increased their loan-loss provisions significantly. But it's supposedly only for energy sector loans. Good luck on the mortgage and consumer credit ones...

I feel like the housing situation in Canada is a ticking time bomb that's gonna drag down a lot of stuff. Been gradually reducing my Canadian equity exposure, but seriously thinking if there's more I should be doing e.g. buying more USD and/or global equities.

As for the rates, the feds have flip-flopped enough times that the market shouldn't be surprised no matter what direction they go. I think that's the whole point, letting the market slowly transition its belief rather than have everybody think it's going to rise now.

 

[Imp]

I feel like the housing situation in Canada is a ticking time bomb that's gonna drag down a lot of stuff. Been gradually reducing my Canadian equity exposure, but seriously thinking if there's more I should be doing e.g. buying more USD and/or global equities.

BC keeps bragging about having a great economy along with Ontario. Meanwhile, every other province (there are 8 others) is flat-lining. And BC (read: Vancouver metropolitan area) and "Ontario" (read: GTA) have insane housing markets. I wonder what's driving these two cities...

I've turned most of my money into USD and am almost all cash -- absolutely not investment advice. I've contemplated gold but it looks too expensive and too dangerous to hold without an army. World is a mess and fueled by one giant credit bubble.

 

[FelixDeCat]

Simple answer nobody is selling right now, in fact dips are being bought causing shorts to cover on light volume. Ouch.

In other news.....CPXX went up 70% the other day to $30 on a buyout offer from JAZZ Pharma. This was widely expected.

In January you could have bought CPXX shares for $1.50.

I bought at $7 and sold at $8......wish I had held out for $30. :'(

 

[Imp]

Good news, auto-loans are at "healthy" levels...

Video alert:
http://www.cnbc.com/2016/06/02/jamie-dimon-just-sounded-the-alarm-on-auto-loans.html

At more than $30,000, the average auto loan for a new car is also at an all-time high, according to Experian. Also, at more than $500, the average monthly auto loan payment is at a record.

The Experian research also noted that more subprime borrowers are borrowing for new auto purchases.

Debt... Yaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa.


Edit: And now another big bank in Canada is saying something might be up with the housing market.

The heads of National Bank of Canada and Bank of Nova Scotia said mortgage down-payment requirements should be boosted to tame the market, joining the Organisation for Economic Cooperation and Development....

Possible video:
http://www.bloomberg.com/news/artic...ll-on-government-to-cool-soaring-house-prices

 

[garndawg]

Good news, auto-loans are at "healthy" levels...

Video alert:
http://www.cnbc.com/2016/06/02/jamie-dimon-just-sounded-the-alarm-on-auto-loans.html

OK, so timing the market and having money to spend when the opportunity presents itself has always eluded me.

However, this actually sets up nicely for me.

Spousal Control Unit wants to trade in the '04 Sequoia for a Suburban. I really like the idea of off-lease prices tanking and walking away with one on clearance...

This Fall? Next year sometime? Thoughts from the Commentariat?

 

[Charmonium]

Why the narrowing yield spread may not mean what it usually does.

http://www.businessinsider.com/a-sign-of-trouble-in-the-us-economy-is-distorted-2016-6

Apparently, since the yields in most of the world are so negative (in terms of volume of bonds that are negative yielding not necessary the negativity of rates), everybody is flocking to the US bond market driving up the price and lowering yields. The article doesn't say this but I assume the implication is that this affecting the long end of the curve than the short end.

 

[Imp]

DXY (right now): ~94.00
DXY (7am today): ~95.55

U.S. May Job numbers: +38,000 (thirty-eight thousand)

Possible video:
http://www.cnbc.com/2016/06/03/fed-again-left-with-egg-on-its-face-as-recovery-falters.html

Ho-Lee-Shit. That's only 5 digits, didn't miss a "1" up front. Goodbye rate hike.

But hey, S&P 500 is virtually unchanged. Economy might be shit but if it's shit, more QE and lower rates longer, so asset prices will keep assploding BBQ!!!

In other news, Canada is celebrating that its trade deficit "narrowed" in April. It's "narrowed" to a deficit of $2.9B which is down from $3.4B.

https://www.thestar.com/business/20...in-april-but-still-short-of-expectations.html

But hey, don't worry, Canada's non-existent economy which planned on piggybacking off the dying U.S. economy (~75% of exports go there) managed to set new highs in its housing. For example, Toronto went up 15.7% year over year!

https://www.thestar.com/business/2016/06/03/toronto-house-prices-up-157-in-may.html

 

[Charmonium]

The job numbers were affected by the Verizon strike but even if you add those back in, you're still at half what was expected. Although the UE rate was down to 4.7% which has to be damn close if not past NAIRU. However that was influenced by a decrease in the participation rate. So kind of a mixed bag. If this number turns out to be for real (not substantially revised and not contradicted by June's numbers) that will probably affect the fed decision but I think the fed is still going to hike. I'm still going with July.

 

[Imp]

What just blows my mind is this constant expectation for more QE, which may be why markets go up on bad news these days.

Since when was it the Fed/governments job to completely avoid recessions that generally take out the trash...

 

[Charmonium]

The idea was to use monetary policy along with fiscal policy to dampen the amplitude of the business cycle. And that could actually work. But the problem right now is that there is no cooperation from the fiscal side. That not only creates more uncertainty which tends to stunt economic growth but it means monetary policy has to carry the entire load - which it simply can't do.

 

[Imp]

I remember a really basic macroeconomics chapter of a book about how stimulus spending and lower interest rates were supposed to mitigate the effects of recessions. This just feels like something else entirely. Near-zero interest rates for almost a decade, negative rates for years in Europe and Japan, QE, QE, QE, and the Fed making decisions based on which way the DOW or S&P 500 moves -- they're not "supposed" to, but that's not what a lot of people see.

 

[Charmonium]

The market influences the economy and the expectations that people have. If you feel well-off (relatively), you spend more which creates the mulitplier effect which increases the money supply. The market is used to raise capital so a healthy market means access to cash on the part of businesses.

So in a very broad sense the fed cares about negative market effects but not anywhere near what I think a lot of people believe. And that's why they always try to telegraph what they're going to do. Since they've said that they're data dependent, people are looking avidly at the data. But the pundits might not see what the fed sees.

The reason QE hasn't worked has more to do with psychology than economics. But of course the 2 are often interchangeable. Businesses don't want to borrow because they don't want to be dependent upon credit that could evaporate tomorrow. So what do they do instead? Hoard cash.

Banks don't want to lend because of stricter capital and loan loss requirements but also because they still remember what happened the last time they lent with gleeful abandon. Also you have a very unfavorable environment for banks with the long-short spread (generally gauged by the 2-10 spread) being very narrow, historically. Add in a variety of other factors and banks aren't as interested in lending as they might otherwise be.

So between businesses being ultra-conservative in their fiscal management and banks being less willing to lend, you have stagnation of the money multiplier as well as velocity. What you often hear called pushing on a string.

Remember that almost all of the money pumped into the economy is sitting in the form of excess reserves. That money can't be used for anything except to meet the reserve requirements for new loans. But if there isn't much lending going on, QE won't have the effect you want it to.

 

[dullard]

I remember a really basic macroeconomics chapter of a book about how stimulus spending and lower interest rates were supposed to mitigate the effects of recessions. This just feels like something else entirely. Near-zero interest rates for almost a decade, negative rates for years in Europe and Japan, QE, QE, QE, and the Fed making decisions based on which way the DOW or S&P 500 moves -- they're not "supposed" to, but that's not what a lot of people see.

This is different because it was a debt recession. Only time can cure debt (and it isn't a guaranteed fix).

Most recessions are out of fear (consumers cut way back on spending) or temporary shortages of something critical (like oil) or something else that can end as quickly as it started. Consumers can usually start spending just as fast as they stop spending. Shortages can end just as quickly as they started. Most recessions can end very quickly. These are V-shaped.

But the recession of 2007-2009 was a debt recession. People maxed out their credit cards and were overextended. When the economy started picking up in 2010, they (a) had no money to spend, (b) had trashed credit scores so they couldn't spend if they wanted to borrow, or (c) banks tightened up so they couldn't spend simply because a bank didn't want them to borrow. It takes 5, 7, 10, 30 years to get out of these debt recessions since it takes that long to pay off car loan, get a bad mortgage off your credit score, for banks to become looser, or to pay off your mortgage. These recessions are L-shaped.

With L-shaped recessions, there are no easy fixes. We never really tried stimulus spending (almost the entire "stimulus" was a series of tax cuts and not the actual spending that our economy needed). But even if we tried, stimulus spending doesn't get people out of debt or wipe bad credit scores. Low interest rates don't help when people can't borrow (tight banks and bad credit scores).

It feels different, because it was fundamentally different.

 

[jpiniero]

What just blows my mind is this constant expectation for more QE, which may be why markets go up on bad news these days.

The market is so overpriced that anything that suggests normalizing rates pretty much requires a correction.. or worse.

But the recession of 2007-2009 was a debt recession

If you mean "debt recession" you mean "no money due to being laid off", then yeah.

 

[Imp]

It takes 5, 7, 10, 30 years to get out of these debt recessions since it takes that long to pay off car loan, get a bad mortgage off your credit score, for banks to become looser, or to pay off your mortgage. These recessions are L-shaped.

With L-shaped recessions, there are no easy fixes. We never really tried stimulus spending (almost the entire "stimulus" was a series of tax cuts and not the actual spending that our economy needed). But even if we tried, stimulus spending doesn't get people out of debt or wipe bad credit scores. Low interest rates don't help when people can't borrow (tight banks and bad credit scores).

On a related note, what the fuq is going on in the rest of the world?

Check out the chart 1/3 of the way down showing "SIZE OF HOUSEHOLD DEBT COMPARED WITH ANNUAL INCOME; (a) in Australia, Canada, France and Italy; in the UK, Japan, the USA and Germany".
http://www.abs.gov.au/ausstats/abs@.nsf/lookup/4102.0main+features202014

Debt to income in 2013 for Australia at almost 180%, Canada at ~165%, and both France and Italy rising. Meanwhile, UK, US, Japan, and Germany trending down.

 

[Imp]

Um, wait , what... Missed this detail earlier..

Growth for March was revised from 208,000 to 186,000, and for April from 160,000 to 123,000.

http://www.npr.org/sections/thetwo-...-38-000-jobs-in-may-far-short-of-expectations

Estimate I keep seeing for Verizon strikers is 35k. Add those back in and number still sucks.

And one economist thinks the May number was even worse at -4000 jobs.

Wright said he arrived at his number by diverging from the government in the way seasonal adjustments are made to the numbers. Whereas the Bureau of Labor Statistics "puts very heavy weight on the current and last two years of data," the Wright method involves going back over six years to measure seasonal patterns, "which makes them more stable over time than in the current BLS seasonal adjustment method," he wrote.

There be a video.
http://www.cnbc.com/2016/06/03/the-us-may-have-actually-lost-jobs-in-may-economist-says.html

 

[Charmonium]

Debt to income in 2013 for Australia at almost 180%, Canada at ~165%, and both France and Italy rising. Meanwhile, UK, US, Japan, and Germany trending down.

That's another part of the problem. People are much more wary of spending money they don't have than they used to be and have gone in the opposite direction, increasing their savings rate. That's great for being financial responsible but it sucks for the economy which is roughly 2/3's consumer spending.

 

[Imp]

It actually kind of makes sense. If credit is borrowing against the future, the U.S. borrowed a hell of a lot from the future before 2008, and now you're living in the future that you previously stripped clean of growth.

But I'm more concerned about Canada and Australia. From the chart, debt-to-income peaked around 140% in the U.S. in 2007. Canada now at 165% and Australia at 180%... both are significantly less diverse economies than the U.S. and very reliant on commodities and real-estate related industries. How much future growth did we bring forward using credit?

 

[Hacp]

That's another part of the problem. People are much more wary of spending money they don't have than they used to be and have gone in the opposite direction, increasing their savings rate. That's great for being financial responsible but it sucks for the economy which is roughly 2/3's consumer spending.

If everyone saved, then there will be an uptick in investment from banks from a larger deposit base. More businesses will appear and prices will lower from higher competition.

Either customer's will increase their spending to take advantage of lower prices, or they will keep saving and cause deflation which is disaster.

 

[FelixDeCat]

Ok, so jobs stunk on Friday and NUGT was up 33% from $72 to $100!!

NOW can we "sell in May"?

(also Fridays jobs will be revised upward, it was just too low)

 

[brianmanahan]

ashes to ashes, NUGT to DUST

 

[Imp]

(also Fridays jobs will be revised upward, it was just too low)

I've been very pessimistic about the U.S. economy since early this year, but even then I thought job numbers would keep looking good for a while -- would have been nice to get another rate hike.

Now, I'm not so sure.

Fed chart for "Temporary Help Services" looks like it's forming a top and even on the verge of turning over. Spot the pattern since 2000?

https://research.stlouisfed.org/fred2/series/TEMPHELPS

Then throw in the delinquencies that have just shot up in 2016 Q1. Only 2008 Q3 to 2008 Q4 saw a bigger jump.

https://research.stlouisfed.org/fred2/series/DALLCIACBEP

Edit: And a note on corporate defaults. It's the Forbes blog from March 2016 but...

This is the highest number of defaults since 2009, when the economy was in the throes of the Great Recession.

...

The oil and gas sector accounted for a minority of total claims with 172 of the 607 issues in the distressed debt category.

http://www.forbes.com/sites/kenrapo...lt-rate-balloons-worst-in-world/#5f16802dcb41

 

[KB]

I've been very pessimistic about the U.S. economy since early this year, but even then I thought job numbers would keep looking good for a while -- would have been nice to get another rate hike.

Now, I'm not so sure.

Fed chart for "Temporary Help Services" looks like it's forming a top and even on the verge of turning over. Spot the pattern since 2000?

https://research.stlouisfed.org/fred2/series/TEMPHELPS

Then throw in the delinquencies that have just shot up in 2016 Q1. Only 2008 Q3 to 2008 Q4 saw a bigger jump.

https://research.stlouisfed.org/fred2/series/DALLCIACBEP

Edit: And a note on corporate defaults. It's the Forbes blog from March 2016 but...



http://www.forbes.com/sites/kenrapo...lt-rate-balloons-worst-in-world/#5f16802dcb41

The temps graph is interesting. Everytime it peaks a recession follows. Jamie dimon puts the recession risk at 1 in 3 but I am putting it near 50% based on that graph.

 

[FelixDeCat]

Then throw in the delinquencies that have just shot up in 2016 Q1. Only 2008 Q3 to 2008 Q4 saw a bigger jump.

https://research.stlouisfed.org/fred2/series/DALLCIACBEP

If it means anything the bank I work for has a commercial delinquency rate of less than 1/2 of 1%. The secret is short maturity dates (annual renewals), deep collateralization, close eye on covenants and required financial statements, lots of oversight and internal / external audits (state, federal, private). Also, it helps to have people who like to stay employed.

 

[Charmonium]

The temps graph is interesting. Everytime it peaks a recession follows. Jamie dimon puts the recession risk at 1 in 3 but I am putting it near 50% based on that graph.

What's the logic for that? You would think that temp employment would go down in 2 very different scenarios - 1) fewer workers are needed so the numbers decline. But in that case you would also expect to see an increase in unemployment. And 2) There are more perm jobs so people are being transitioned from temp to full employment.

I can see this going either way at this point. If full time employment is indeed contracting and the most recent numbers and revisions aren't just an aberration, then scenario (1) seems more likely. But if unemployment really is decreasing as indicated by the current 4.7% rate, then scenario 2 seems more likely.

That temps chart only seems to go back 3 recessions and for the first one, it's not really clear that there is a correlation.