Warning signs are flashing on Wall Street
NEW YORK — After the stock market's best year since 1997, warning flags are starting to go up on Wall Street, where stock turbulence is on the rise and froth is being rubbed out.
1. Not-so sweet IPO.2. Hot momentum stocks cool off.3. Leader turns laggard.For the broad market to move higher, investors would like to see the economy bounce back from weakness caused by stormy weather, corporate earnings have to perk up and CEOs have to tell Wall Street that things are looking better, adds Koesterich.
Ultra-bear Albert Edwards has a question for everyone slamming his recession call
Societe Generale equity strategist and uber-bear Albert Edwards says his recent call for the U.S. economy to slip into recession has been met with “hoots of derision.” But in a new note, he has a question for all of you smarty-pants out there: If the economy is accelerating, “how come Thomson Reuters has just reported the fastest pace of U.S. earnings downgrades on record?”DYI Comments: Please note this article was published on December 11, 2013. The reason for the posting is that even though Albert Edwards is off on his timing his premise continues to have validity. Here is one of the big reason that I've been watching.
Says Edwards: ”If, as we suggested here last week, the margin cycle is turning down, profit forecasts over the next few weeks will be eviscerated. To me, this is consistent with recession.”
DYI Continues: A great call by Edwards that bonds would out perform stocks way back in 1996. I was in that camp promoting an asset allocation heavy in government (30 year Treasuries) and corporate bonds as well. Two years later (1998) I was a massive bull on gold. As a value player contrarian can be very lonely as Edwards would not have been vindicated until the year 2002 with superior returns. Six long years. I wonder how many of their clients left for the higher but temporary returns?
Edwards is famous –or infamous — for his Ice Age thesis, which he first unveiled in 1996. Edwards has argued that investors should be underweight on equities and heavily long on bonds, asserting that global deflationary pressures are setting the stage for an equity collapse and a bond boom.
Shifting Policy at the Fed: Good for Long-Term Growth, Bad for Cyclical Bubbles
John P. Hussman, Ph.D.
Meanwhile, almost as if to put a time-stamp on the euphoria of the equity markets, IPO investors placed a $6 billion value on a video game app last week. Granted, IPO speculation is nowhere near what it was in the dot-com bubble, when one could issue an IPO worth more than the GDP of a small country even without any assets or operating history, as long as you called the company an “incubator.” Still, three-quarters of recent IPOs are companies with zero or negative earnings (the highest ratio since the 2000 bubble peak), and investors have long forgotten that neither positive earnings, rapid recent growth, or a seemingly “reasonable” price/earnings ratio are enough to properly value a long-lived security. As I warned at the 2000 and 2007 peaks, P/E multiples – taken at face value –implicitly assume that current earnings are representative of a very long-term stream of future cash flows. One can only imagine that recording artist Carl Douglas wishes he could have issued an IPO based his 1974 earnings from the song Kung Fu Fighting, or one-hit-wonder Lipps Inc. based on Q2 1980 revenues from their double-platinum release Funkytown.DYI Continues: Complacency is the new speculation. My model portfolio continues with a high short term bond exposure waiting optimistically for better values in the future.
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