Planet Yelnick

Yves on the Trump Trade

We are at a critical junction in markets, and our favorite guest blogger Yves Lamoureux advises on the change of trend. He has made recent prescient calls in other markets too, such as Japan. Earlier this year he called a change in stocks, and predicted the current blow-off run to new highs. Here is his view on the bond market:

In nature, there are seasons. In the affairs of men, there are seasons. And seasons in finance? Mentioning cycles in markets hurts the fragile sensibilities of so-called objective investors, however.

A wise investor knows it is not wise to follow the herd. We have come across what we believe represents the crystallization of crowd consensus on interest rates. The cover of The Economist dated September 22 shows the Fed on a small legged horse with the headline “Living in a low-rate world.”

It caught our eye, having correctly presented our case of the next wave of a credit event on July 5 at the very top of the bond market

We maintain our view that coming bond losses will be brutal, and we timed the bottom of real rates on the 10-year to perfection late 2012 (see our appearance on Yahoo Finance on 22 January 2013). Consider this chart:

Fear not, stockholders, because this time the Fed will come to the rescue by buying shares, a prediction we put forth more than one year ago.

A few will remember our track record on these matters. One year before the Fed started buying bonds, we predicted that the Fed would do so. Our business is one of making correct predictions, not endorsements.One year ago we predicted a Trump win and to wit that he was going to be credited by jump starting the economy.

Hope you are following the big picture of debts accumulation.

It is all part of the big picture. Bonds are going to continue to tumble past 2020, like we said back in the interview with Jeff Macke. As you see, our work often has a big lead time. It is advantageous to big money managers who need time to adjust and prepare. We have been bullish on stocks for a long time. In essence we have been front-running the market waiting for that point in time when the Fed starts buying our stocks.

For regular readers, it’s been on our radar for a long time and just recently did the Fed say that buying stocks is in its toolbox.

The same was done on the bond front. One year earlier, our forecast of the Fed buying bonds was met with a yawn because we were alone in this view. We were long bonds and they rallied strongly while everyone was outrageously calling for coming high interest rates that did never materialized.When the Fed started buying bond with their operations it was easy to unload our bonds at much higher prices.

On to the more technical aspects of our work

Our view has been that from 2011 onward, there’s compressing fear regarding bonds in terms of sentiment. In other words, each price drop is met with less reaction as we move forward in time.

It is at odds with price and behavior that are always coincident.

The apex of such behavior merits the cover of The Economist, and the timing was perfect. Away we go!

Consensus seems to be surprised by the strength of the rise in interest rates, or inversely, the drop in bond prices. Most observers admit being caught off guard but will willingly offer the view that this is a bottom.

Unbelievable. We strongly dissent!

Note that from late 2012 up to today we have traced a perfect wave 1 and wave 2 in 10-year real rates. It appears we have begun the cycle of a wave 3.

For fans of wave talk, this represents the most dynamic of waves, and it will lead in our view to substantially higher rates coming in 10-year and 30-year bonds.

We had written in June of 2015 about the term premium and showed how abnormally compressed it was because of the intervention of central banks. You can hold down anything for long time, but when the uncoiling comes it is more devastating and equates to actually what is unfolding with bond prices.

Our attempt to describe what is going on is simple: the cost of money is going up, or to say it in another way, real rates are going up. We will not hide that we have been a staunch bull on the US dollar as one of the implications of rising rates.

Precious metals saw an echo bubble and have resumed their bear market.

Our Trump prediction did re-enforce the view of how things will continue to shape up: Main Street may finally see some economic gains at the expense of Wall Street!

Yves Lamoureux

@yveslamoureux

Yves on The Financial Singularity: AI Impacting Stock Markets

Guestpost from Yves Lamoureux, who was über bearish last year, but is bullish this year. Technically, he sees the current market as finishing a wave 4 down, to be followed by a blow-off wave 5 to surprising highs. It may be driven by Fed panic and QE4, if not an outright NIRP. Fundamentally, as this post discusses, he thinks trading bots are evolving towards AI trading.

The financial singularity is upon us! We think about this point in time where artificial intelligence will be capable of recursive self-improvements in the financial affairs of humans.

Machines have been allowed to trade at incredible speeds. Now they have been allowed to learn. Our understanding of market mechanisms may be altered permanently. We use the language of waves to express our viewpoint. Increasingly it is usurped by machines that have no emotions.

So we put it to you. Why would waves work if the players don’t feel a thing?

We clearly understand this point as we have developed an alternative to forecasting models based on behavioral analysis. Progressively computers destroy what was reliable patterns to trade on. We see it in action daily. Certainly wave extensions are a good example. What would turn out to be a usual length now becomes almost perpetual. Thank the machines!

Most importantly is, in this environment, the ability to adapt as fast as you can to this paradigm shift. The invasion of blockchain in finance will further the advance of A.I. Human traders will be relegated to second tier markets and eventually be banished from trading all together. We have crossed this point in time where the future of finance may just be unfathomable.

At this moment, our models have generated large buy signals on the stock market. Like late 2008, where we called the bottom, our stocks did not make new lows in March 2009.

In other words, it’s a process. Notwithstanding summer weakness, we strongly believe that our picks have seen their ultimate lows. The mother of all crashes is coming but may be years away. We spent a good deal of time in 2015 shorting everything in sight.

This year paint us bulls.

CES2016: VR is the Hare, AR the Tortoise

VR was all over CES this year. Lots of excitement, but little content - and the incredible Oculus Rift has a catch: not only will it sell for $600, it requires a fast "gamer" PC to operate. It is believed that 2016 is the make or break it year for VR. As with 3D TV, which was flogged at CES for several years before being considered a flop, VR deserves and will have a longer gestation period. Besides Samsung and Sony, Google is working on a much less expensive VR headset. Yet, the hype could lead to a rejection. Instead, at CES I began to see the longer-term promise of VR's ignored cousin, AR.

 

I love CES!!! #ces2016 #lasvegas #samsunggear #hyphy

A video posted by Duncan Davidson (@duncandavi) on Jan 7, 2016 at 10:43am PST

AR has been rumbling and stumbling out of the gates. Google Glass was a flop. Microsoft shows promise with its HoloLens, but it is still a curiosity. Apple is said to be working on it, but then, Apple is said to be working on a lot of things. Its rumored plans to re-invent TV has never materialized.

The promise of AR was most visible in the auto section at CES. Lots of excitement over "3D dashboards" and the use of LADAR (laser radar) to image 360 degrees around a vehicle. You can already see this in high-end cars, where when backing out a 3D image around the car is shown on the dashboard screen. It is augmented with lines showing drivability. With LADAR now dropping fast in price, 3D dashboards should come to mainstream vehicles. With it should come augmented windshields, which show what is around the car with identifying information. Microsoft HoloLens could be used for this, and Apple is also rumored to be working on augmented heads-up displays for vehicles.

Where does this go? Right now, augmented 3D displays are only shown for slow speed driving, like parking or backing out. It would become hugely distracting for drivers at speed. Perhaps instead of augmenting reality for drivers, it will become the interface to make self-driving cars more intelligent. 

AR for robots, not people ...

Market is Finding a Bottom

Technical indicators say a bottom is forming, see the attached chart from AllAboutTrends. Fundamentals say the same: this is all about oil, and oil has already been forming a bottom. Markets should follow. Why this may be so is fascinating.  

We should expect a final "flight to quality" to US assets as economies around the world slow down, the US being the last market standing. This has been occurring - you can see it in the rise of the USD and especially in flight capital from emerging markets. It should spill over into equities, but for some reason selling pressure has been much stronger since the new year.

The countervailing force appears to be Sovereign Wealth Funds (SWF), particularly from oil states. Their SWF's are rainy day funds, and the drop in oil means it is pouring. Places like Saudi Arabia and even Norway have tuned their spending and welfare to $80 oil, and are draining capital at $30. The Saudi's have had to embrace austerity, and to raise cash have even announced the extraordinary event of selling shares in their Aramco oil holdings.

Problem is, SWF's tend to invest in long-term, illiquid projects. Airports, solar farms, other infrastructure. The top of their stack are stocks and bonds, liquid assets. These they are dumping to provide funds back to their governments. They started last year, selling European stocks.  This now appears to have tumbled into US equities. This should become clearer as reports come in, but the market won't wait. If oil has really found a bottom, and not a dead-cat bounce, US equities should turn, and turn rapidly.

Battling the Great Recession: More Powerful Weapons, Much Bigger Mistakes

Guestblog - enjoy!

Bad times have a scientific value. These are occasions a good learner would not miss. – Ralph Waldo Emerson

For years, the Great Recession has affected a number of families in the United States.

The economic meltdown has forced private sectors to reduce their workforce. That, or employees have decided to find jobs elsewhere. The recession, though considered “a period of dark times”, is a wake-up call.

With the rising unemployment rate, what else is in store for you? How will you survive?

Recession and Weapons of Mass Destruction

Although the war with Iraq did not directly cause the recession, it had somehow magnified its degree.

According to the Center for Economic and Policy Research (CEPR), while the war did impose serious costs on the economy of the United States, it cannot be entirely blamed for the Great Recession.

The root cause is the collapse of the housing sector.

However, continually spending for ammunition and other military equipment had added to the economic meltdown. This drastic move has gradually drained resources, and has reduced the number of jobs available.

Now that America is slowly building itself from the recession, though the job market has not fully regained itself, the possibility of the employment rate dwindling may discourage you to look for jobs.

What do you now do in the midst of the crisis?

The answer cannot be more obvious: You go back to your roots, do what you love best, and earn from it. Simply put, be an entrepreneur.

Thrive in your Business, Survive the Great Recession

Despite the improvement in the economy, you cannot deny that the recession may still be pulling down the employment rate. You can save your money, cut back on resources, and then you can get by. But then, a more positive approach lies in learning from what happened.

It now becomes clear for families that unemployment lingers.

Don Peck, in his article “How a New Jobless Era will Transform America”, laments the fact that people might not yet feel a sense of normalcy even if the Great Recession seems to be taking a backseat.

However, he says that innovation can allow an economy to rise and create more jobs.

Tiffany Meyers of Entrepreneur shares the same sentiment. Instead of feeling low, change the way you think.

Use the aftermath of the recession as your springboard to create your startup business and make innovations.

As Emerson said, learn from the bad times. Julie Meyer, one of the most influential women in Europe, believes that entrepreneurs can lead a country out of recession.

She says that “there’s a new social contract emerging which is around the individual” and that “everybody is aware of the high unemployment in the group coming out of universities.”

Stephanie Johnson, 32 and a mother of three, was displaced from her job as a graphic artist for a local newspaper.

During the recession, her problem was how to feed her children. She did save what was left of her earnings, and she refrained from shopping online.

However, she figured she could not live that way forever, especially when her kids were growing up.

After the recession, Stephanie used a portion of her savings as capital and made organic bath products. It used to be a hobby for her, but the recession prompted her to become a fulltime entrepreneur.

Ultimately, the recession has taught her to use her capacity to fight against unemployment.

It is not a question of how the Great Recession will transform America, but of how you will transform your nation.

Wrapping Up

The decision to start your own business may seem intimidating at first, and you might even think of investing in IPO’s to create your brand and establish your credibility.

Do not be afraid. Remember that you are more powerful than the Great Recession and that through your efforts; you can emerge from the economic rubble.

Who knows?

You might even save America from another recession in the future.

About the Author

Bill Achola is a financial publisher who owns a fast-growing, dynamic and innovative investment blog that empowers investors to make the right decision. Check out his blog where he writes and talks about best investing strategies at http://traderushreview.us.com.

 

China Bubble – Great Call by Yves

I have frequently posted as a guestblogger Yves Lamoureux. Back in 2013 he called a coming China Bull Market when everyone was bearish. Here is how it turned out:

The question now is when will it burst? It shows the parabolic characteristics of a bubble. Is China 2015 = Japan 1989?

The Unicorn Bubble is Finally Getting its Due

Tech bubble: Different this time? 

By Elliott Wave International

Editor's note: This article is from Elliott Wave International's brand-new investment report, "U.S. Investors Face a Giant, Historic Bubble." It originally appeared in the April issue of The Elliott Wave Financial Forecast, published March 27, 2015. For a limited-time, EWI has agreed to give our readers exclusive free access to the full report. Please click here to read it now.

In March, we covered the return to a popular fascination with technology.

The striking resemblance to 2000's technology mania is not going unnoticed. How can it? With the NASDAQ's much heralded return to 5000 and magazine covers proclaiming "Google Wants You To Live Forever," concern about an "asset bubble" is being raised. But this is actually another throwback to early March 2000, when the NASDAQ reached its all-time high and the Financial Forecast remarked on a "public ambivalence toward warnings of any kind."

The March issue of The Elliott Wave Theorist explains that while people may remember some of the details, they "forget their prior mood and rationalize present extremes into normality."

This March 7 headline from a major financial paper offers a perfect example of how this "normalization" works: "Forget 2000. It's a Different Investing Ballgame." Really? Yeah, really. "It really is different this time," says another. "The crazy valuations seen at the turn of the millennium -- when silly concepts, such as collecting eyeballs, attracted billions of dollars from breathless speculators wanting to get in on the new, new thing -- are absent."

There's just one problem with this assessment, it's not accurate. Here's the reality, or should we say surreality, as depicted in Bloomberg on March 17:

The Fuzzy, Insane Math That's Creating
So Many Billion-Dollar Tech Companies

The article discloses how companies are shooting to "astronomical valuations," mostly with Internet ideas that capture people's bullish imaginations and, as in 2000, cause them to look beyond mundane things such as cash flow and profits. Once again, such stone-age metrics are less important than "the number of people using the product" and "whether they pay for it. Investors salivate over what's called 'hockey-stick' growth curves, indicating massive uptake. Costs, especially operations costs, are largely ignored."

As in 2000, the fever has been spreading fast. According to Bloomberg, start-ups with billion-dollar valuations were once dubbed "unicorns" because of their rarity. Now, Bloomberg counts more than 50 of them. Many have expanded ten-fold, so a new buzzword, "decacorn," now applies to those with capitalizations of more than "$10 billion, which includes Airbnb, Dropbox, Pinterest, Snapchat and Uber."

Of course, the driving force behind many of these investments is the same--a fear of missing out (FOMO).

"A severe case of FOMO can cause some to do crazy things to get into the hottest deals," says Bloomberg. This is exactly what the Financial Forecast said in March 2000, when we explained why people fail to heed ample warnings in the final throes of a mania: "Acting on such an opinion might mean missing something on the upside. 'The average person must ride it out,' says [a] Nobel Prize winner. Quotes such as these will deserve preservation in bronze when the bear market is mature." Clearly, that time still lies ahead.

For compelling Elliott wave evidence of a culmination of the Mania Era, see the five-wave advance in the share price of the current technology leader, Apple Inc., on page 3 of the March Elliott Wave Theorist. As the Theorist notes, after rising more than 14,500% over the past 12 years, S&P Dow Jones Indices added the stock to the Dow Jones Industrial Average on March 19.

This is one more remarkable parallel to the prior technology mania, as Microsoft was added to the Dow Industrials just prior to its January 2000 top. Here's how EWFF interpreted its addition in November 1999:

The ultimate concession to technology is due November 2, when Microsoft will be inducted into the Dow Jones Industrial Average. For most of the bull market, the world's most dominant stock was excluded from the world's premier blue-chip average. But just as RCA was added to the Dow in October 1928 (and removed in 1932), Microsoft has assumed its rightful place at the head of the pack, in time to lead the way down.

Apple has just been acknowledged in the same way and for the same reason. The pressure to pile onto the technology bandwagon has proved irresistible to the Dow's purveyors. This has generally happened when the most important stock market reversals were at hand.

Editor's note: This article is from Elliott Wave International's brand-new investment report, "U.S. Investors Face a Giant, Historic Bubble." It originally appeared in the April issue of The Elliott Wave Financial Forecast, published March 27, 2015. For a limited-time, EWI has agreed to give our readers exclusive free access to the full report. Please click here to read it now.

Interest Rate Hike - Will They or Won’t They?

This is a guest blog by Farnsfield Research on of the most critical issues to investors, what will the Fed do? Enjoy!

With the numbers showing close to full employment, the Federal Reserve may be preparing to move on raising short-term interest rates in June. The short-term interest rate has been near zero since 2008.  The Labor Department reported an increase of 295,000 non-farm payrolls in February, and the past four months have seen fast-paced job gains, dropping the unemployment rate to 5.5 percent. The question on everyone’s mind is “Will they or won’t they raise interest rates in June?” Let’s take a look at what leaders are saying.

Janet Yellen
Federal Reserve Chairwoman Janet Yellen is still exercising caution about raising rates. She reported that the March 17-18 meeting of the Fed will see a patient approach even though robust numbers seem to signal a rate increase is coming. She talked about hints, but no significant wage growth when addressing the Senate Banking Committee recently. Officials are concerned about inflation running under their two percent inflation target and want to see what happens with output, employment, and inflation before any changes are made.

Scotiabank Economists
Scotiabank economists are saying the Fed will hike rates in June in spite of concerns about inflation. They say the risks that market watchers are citing, such as collapsing oil prices, are not a big enough threat to the U.S. economy to delay a mid-year rate increase. Scotiabank feels lower fuel prices could actually help inflation by encouraging consumer spending, creating more incentive to raise rates.

John Crudele
New York Post columnist John Crudele disagrees that the indications point to a mid-year interest rate increase by the Fed. He says the economy isn’t doing as well as the newer numbers might seem to indicate. He warns that because the dollar has recently risen against a range of currencies, companies doing business overseas will struggle and the U.S. government will have to pay more to borrow money. CNBC commentator Ron Insana agrees with Crudele and doesn’t think the Fed will raise rates at all this year because of a weakening world economy.

John Williams
San Francisco Federal Reserve Bank President John Williams urges a rate increase, saying that waiting too long is riskier than starting a gradual increase now. He says mistakes now could mean the need for a bigger sudden rate hike later, which would have dire consequences on economic recovery. He supports his position by pointing to the 1965 economy, which had similar low inflation and economic growth as today and led to an economic boom.

This is in stark contrast to Chicago Fed chief Charles Evans’ call for delaying rate hikes another year. And chief market analyst at Phoenix Financial Services Wayne Kaufman says he doesn’t think the Fed wants to go against the trend of central banks around the world lowering interest rates.

The Real Debate
The real debate about the rate hike revolves around moving too quickly and risking harm to the recovery, or waiting too long and risking inflation or a financial bubble. Federal meeting minutes have indicated officials are more inclined to wait, not willing to upset a still-fragile economy or go against a weak global economy.  

Amherst Pierpont Securities economist Stephen Stanley’s impression is that the Fed is remaining intentionally non-committal to when a rate hike would happen out of concern that financial markets could overreact. Deutsche Bank Securities chief U.S. economist Joseph LaVorgna feels the Fed is being much too cautious about markets.

Employment numbers seem to be pointing to stronger economic recovery, but economists are looking more closely. Trim Labs, CEO Charles Biderman, says the Federal Reserve won’t be able to raise interest rates this year at all because even though there’s been rapid employment growth, it’s not real growth. It was due to the end of extended unemployment benefits pushing people into minimum wage jobs.  

Do you think interest rates will be raised this June?

Author Bio:
Max D. - Max is a technical writer who regularly contributes financial topics to Farnsfield Research and other investing blogs. Max spends his time running multiple companies in the financial sector. This allows him to have a constant finger on the pulse of the industry.

Wall of Worry, Meet Flight to Quality

Bull markets climb a wall of worry, and this one has climbed a veritable Cliff of Insanity, with steep macro problems coming out of the Great Recession. So far the Bull has largely tracked increased earnings, but they are now lagging, particularly as the Dollar strengthens and profits on foreign earnings drop. In addition, many commentators have noted how the S&P correlates with the Fed Balance Sheet from QE (see chart), but that too has now ended.

What will drive stocks higher? Look no further than the Flight to Quality happening worldwide. Pundits have been surprised by the drop in US Treasury Yields after QE ended, but they shouldn't have been; the USD is rising sharply as flagging economies use Currency Wars to promote exports, driving other currencies down. One somewhat unexpected consequence is the scramble for better collateral; there is an estimated $9T USD carry trade worldwide, and as currencies drop in other countries, the need for collateral drives demand for US Treasuries and other US assets. 

What may happen? The demand for USD should accelerate, and act like a liquidity pump like QE or the Greenspan Put before it in (for example) 1998-99, which drove the historic dot-com bubble. This pump will likely spill over into US equities and may lead to yet another bubble. 

Yves Calls a Bond Panic

Bond rates have dropped, surprising the herd, which had expected a continued rise as the Fed tapers. Yves Lamoureux, the New Bond Guru, has put out a new report: Where are bonds headed for 2014. He expected, since February, the long bond to drop to 3.25% this summer before snapping back to higher rates. 

In 2012 Yves called the end of the 30 year bond bull market. He was called the New Bond Guru for calling it correctly while the Old Bond Guru (Bill Gross) was still predicting bonds to rise and rates to drop. A year later in August 2013, after a rise and rates and then a drop, he put out an important bond call that bond apathy was ending and a bond panic would set in as rates were to rise again. After a 30-year drop in rates, the long bond rose from around 2.5% to over 4% in less than two years, an astounding change that Yves predicted too. The ten-year bond rose from 1.6% to over 3%. Now rates are falling and a short-term panic (rush to buy) may push them further down.  

Yves commented to me that with all this money going around clueless, the next big trend he sees has nothing to do with Wall Street's current obsession about a slowdown and deflation. He sees a large reflation on the horizon that will surprise everyone again!