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Articles by Lance Roberts

Weekend Reading: Back Where We Started

September 30, 2016

In last weekend’s newsletter, I discussed the “round-trip” move of the market following the Fed’s latest announcement to NOT hike rates.
“It is not surprising the Fed once again failed to take action as their expectations for economic growth were once again lowered. In fact, as I have noted previously, the Federal Reserve are the worst economic forecasters on the planet.
As shown in the table/chart below, not only are the expectations for economic growth now the lowest on record, the Fed has given up on 2% growth for the economy with the long-run economic projections now at just 1.9%.”

“This should surprise no one. The Federal Reserve has continued to hope for the last several years that extremely ‘accommodative’ monetary policy, and near zero interest rates, would spark stronger levels

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Weekend Reading: Another Fed Stick Save, An Even Bigger Bubble

September 23, 2016

As I noted on Thursday, the Fed non-announcement gave the bulls a reason to charge back into the markets as “accommodative monetary policy” is once again extended through the end of the year.
Of course, it is not surprising the Fed once again failed to take action as their expectations for economic growth were once again lowered. Simply, with an economy failing to gain traction there is little ability for the Fed to raise rates either now OR in December.
However, it was the docile tones of the once again “Dovish” Fed that saved market bulls from a “bearish” rout. The recent test of the bullish trend line from February lows combined with a move back of the 50-dma clears the way for the markets to retest, and potentially breakout, to new highs.

With economic data remaining extremely weak,

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Weekend Reading: Volatility Returns With A Vengence

September 16, 2016

Ironically, last week I titled last week’s reading list “Market Stasis” with respect to the 43-days of sideways market action with relatively minor price fluctuations. That publication marked the respective end of that complacency.
This past week has been anything but complacent as the volume in volatility trades have exploded simultaneously with wild swings in market price from spectacular declines to surging rebounds.

This corrective action, which I have warned about repeatedly over the last month (see here) may be different than the standard “buy the dip” correction. The market has already violated both initial supports (the bull trend line and previous highs) which brings into focus the bull trend support line from the February lows. A violation of the latter will likely see the

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Why The Fed Is Trapped

September 8, 2016


Wishful Thinking

The confusion at the Fed continues as Federal Reserve Bank of San Francisco President John Williams painted an upbeat picture of the U.S. economy in a speech on Tuesday. This, of course, comes despite recent disappointing data on both the employment and economic fronts.
“The economy is in good shape and headed in the right direction. As a result, it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later.” 
Of course, the Fed’s Williams is once again “jawboning” the media and Wall Street, as despite their best efforts over the last several years, economic growth has continued to slow to ever lower growth rates. This is clearly shown in the chart below which shows the Fed’s “predictions” versus actual outcomes.

However, despite

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Weekend Reading: Intriguing Eruditions

September 2, 2016

On Tuesday, I noted the end of summer and the entrance into one of the weakest months of the year statistically speaking.
“We can confirm BofAML’s point by looking at the analysis of each month of September going back to 1960 as shown in the chart below.”

“As shown, the average return for all months of September is -.70% with a median return of -.42%. More importantly, the statistics for September are universally negative. The number of losing months outweighs winning months by 31 to 25 which gives September a 55% chance of being negative historically speaking. While the “average and median” losses are less than 1%, this analysis obscures the fact that many September months registered losses of greater than 3%.”
As Donald Trump would say: “Not so good. Not so good.”
This past week has

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Q2 Earnings Review—–Wall Street Hockey Stick Hopes Still Rampant

September 1, 2016

With roughly 97% of the S&P 500 having reported earnings, as of the end of August, we can take a closer look at the results through the 2nd quarter of the year. Despite the exuberance from the media over the “number of companies that beat estimates” during the most recent reported period, 12-month operating earnings per share FELL from $98.61 per share in Q1 to $98.33 which translates into a quarterly decrease of 0.2%. While operating earnings are widely discussed by analysts and the general media; there are many problems with the way in which these earnings are derived due to one-time charges, inclusion/exclusion of material events, and outright manipulation to “beat earnings.”
Therefore, from a historical valuation perspective, reported earnings are much more relevant in

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Bubbles And Elevators

August 31, 2016

By Michael Lebowitz, CFA

Volumes have been written on behavioral finance and the seemingly “irrational” decisions investors tend to make to avoid straying from the herd. This article examines a current example coined “FOMO” (fear of missing out), in today’s texting parlance. Through a better understanding of the psychological dynamics of bubble mentality, we hope to help investment managers better grasp the complex role they must play when their concern for poor expected returns and higher levels of risk  are pitted against their client’s fear of not keeping pace with the market.
Candid Camera

Allen Funt and Candid Camera filmed a famous episode designed to show how humans tend to behave like each other, regardless of the logic in doing so. In their experiment, an unknowing man

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Debt, Deficits & Economic Warnings

August 29, 2016

While the world has been focused on the Federal Reserve, the markets, and the upcoming election, few have noticed the expansion of the deficit in recent months which is now in excess of $667 billion up from a recent low of $530 billion. The chart below shows the history of U.S. surplus/deficit:

During the financial crisis, the deficit ballooned to a record of $1.35 trillion as tax revenue declined as Government spending swelled. Importantly, the Federal Deficit was approaching 10% in 2009, a historical record for the U.S., but still remains at levels associated with weaker economic growth rates and recessions.

The decline in the deficit was artificial in many ways as it was primarily due to the reforms from the “2011 Budget Control Act” which including tough spending cuts and a big tax

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Yellen Speaks Japanese

August 29, 2016

As Yellen spoke on Friday, the markets surged back into the trading range that we have been locked into for the past few weeks. Despite GDP being revised lower and economic data continuing to remain weak, the hopes for a strengthening economic recovery from the Fed remain. Here are Yellen’s key points:
YELLEN SAYS RATE-HIKE CASE `HAS STRENGTHENED IN RECENT MONTHS’
YELLEN SAYS ECONOMY NEARING FED’S EMPLOYMENT, INFLATION GOALS
YELLEN: FOMC NOT ACTIVELY CONSIDERING ADDITIONAL TOOLS
YELLEN SAYS GROWTH NOT RAPID BUT ENOUGH TO IMPROVE LABOR MKT
On those headlines, the market rallied as the expectations for a September rate hike dissolved.
Remember, raising the Fed Funds rate is a tightening of monetary policy which withdraws liquidity from the financial markets. With fundamentals and

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Weekend Reading: The Coin Flip Market

August 26, 2016

As summer begins to fade, and kids return to school, the focus once again turns to the annual event of Central Bankers in Jackson Hole, Wyoming. However, if you only looked at the market as a gauge as to the excitement of the event, well it must have been one pretty boring after-party.

The current action is aligning more closely with a normal corrective event from an extreme overbought condition. During such a “normalized” market correction, the market should pull back to the most recent support, hold that support level and turn higher if the current bullish trend is to remain intact.
However, with all other indicators now pushing extreme levels, a correction from current levels could be somewhat larger than currently anticipated. As I discussed recently:
“However, there is a more than

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Three Things To Ponder—— $4 Trillion QE, VIX Update, Wage Warning

August 25, 2016


Would Another $4 Trillion In QE Work?

Just recently, David Reifschneider, deputy director of the division of research and statistics for the Federal Reserve board in Washington, D.C., released a staff working paper entitled “Gauging The Ability Of The FOMC To Respond To Future Recessions.” 
The conclusion was simply this:
“Simulations of the FRB/US model of a severe recession suggest that large-scale asset purchases and forward guidance about the future path of the federal funds rate should be able to provide enough additional accommodation to fully compensate for a more limited [ability] to cut short-term interest rates in most, but probably not all, circumstances.”
In other words, the Federal Reserve is rapidly becoming aware they have become caught in a liquidity trap keeping them

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Weekend Reading: Valuation Challenged

August 19, 2016

As another week comes to a close, we continue to wrestle with a market that remains detached from underlying economic data and clings to recent levels of over overbought, overextended and low reward/risk outcomes. Of course, in the final stages of a bull market, this is what has historically been the case.

As I stated last week:
“The problem for individual investors is the ‘trap’ that is currently being laid between the appearance of strong market dynamics against the backdrop of weak economic and market fundamentals. Ignoring the last two to chase the former has historically not worked out well.”
There was an excellent article by John Authers for the Financial Times on Friday to this very point:
“Markets are extravagantly confident that brokers are too bearish, and that their profit

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Liquidity Trapped! The Fed’s Policy Nightmare

August 18, 2016

Yesterday, we got the release of the minutes from the FOMC meeting in July. Not surprisingly, we see a Fed just as confused as ever as to what monetary policy actions should be taken. To wit:

FED OFFICIALS SPLIT IN JULY ON WHETHER RATE HIKE NEEDED SOON
A COUPLE FED OFFICIALS BACKED JULY RATE HIKE
FOMC VOTERS AGREED TO WAIT FOR MORE DATA TO GAUGE ECONOMY
SEVERAL FED OFFICIALS CONCERNED OF FIN. RISKS FROM LOW RATES
SEVERAL FED OFFICIALS SAW AMPLE TIME TO ACT IF INFLATION RISE
FOMC VOTERS DIVIDED ON WHETHER JOB-GAIN PACE WORRISOME

As I wrote previously, I think the Fed is making a major policy mistake.
“First, with the markets making new all-time highs, there is a ‘price’ cushion available for the markets to absorb a rate hike without breaking important downside support.
Secondly, with

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A Bull Market In Complacency

August 16, 2016

On Monday, the markets hit new “all-time highs.” That’s the good news. The bad news is that such is occurring on a rapid decline in volume as shown in the chart below. While volume by itself is not a great indicator from which to manage money by, it …

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Something’s Gotta Give

August 14, 2016

Yesterday, media headlines rang out: “The Markets Just Did Something It Hasn’t Done Since 1999.” It’s pretty amazing when you think about it for a moment. All three indices hit simultaneous new highs at a time when earnings, profitability, and econom…

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Another Bear Market Warning In The GDP Data

August 3, 2016

Editor Note: Michael Lebowitz of 720 Global Research is an investment consultant, specializing in macroeconomic research, valuations, asset allocation, and risk management.  He is a regular contributor to Real Investment Advice.

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Look, Ma, No Asset Bubbles!

August 2, 2016

“ In this past weekend’s newsletter, I reviewed the current state of the market and the risks of an August/September correction from a statistical standpoint. However, the important point was the stagnation of the market over the last couple of weeks…

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Coming Now——The Two Most Dangerous Months

July 31, 2016

Since I was traveling on vacation last week, and did not write a weekly report, I want to use this opportunity to update the previous analysis and model positioning for the current environment. This is particularly important as we enter into what has…

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Japan’s Road To Kyoki (Insanity)

July 27, 2016

Editor Note: Michael Lebowitz of 720 Global Research is an investment consultant, specializing in macroeconomic research, valuations, asset allocation, and risk management.  He is a regular contributor to Real Investment Advice.

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