BAML: The Taper Continues

This morning’s job number was not bad enough to forestall the taper, and the weakness of January was likely transitory according to the Bank of America Merrill Lynch US Economics team (emphasis mine)…

 On balance, this does not change our view for Fed policy or our optimistic outlook for the economy this year. We are penciling in a slowdown in growth in 1Q to 2.0%, in part due to poor weather conditions, but expect a rebound in 2Q to 3.3%. We think the Fed will look past the recent soft jobs data, especially in the context of strength elsewhere in the economy. Other indicators which are less sensitive to weather, such as consumer and business surveys, have continued to improve. We expect Fed Chair Yellen to stay the course at her testimony next week, reiterating her view that the economy is healing, allowing for a measured pace of tapering.

DYI Comments: NONE

Warning: Stocks Will Collapse by 50% in 2014

“We are in a gigantic financial asset bubble,” warns Swiss adviser and fund manager Marc Faber. “It could burst any day.”  

Faber doesn’t hesitate to put the blame squarely on President Obama’s big government policies and the Federal Reserve’s risky low-rate policies, which, he says, “penalize the income earners, the savers who save, your parents — why should your parents be forced to speculate in stocks and in real estate and everything under the sun?” 

Billion-dollar investor Warren Buffett is rumored to be preparing for a crash as well. The “Warren Buffett Indicator,” also known as the “Total-Market-Cap to GDP Ratio,” is breaching sell-alert status and a collapse may happen at any moment.

 DYI Comments: NONE

Marc Faber Warns "Insiders Are Selling Like Crazy... Short US Stocks, Buy Treasuries & Gold"

Beginning by disavowing Mario Gabelli of any belief that rising stock prices help 'most' people ("Fed data suggests half the US population has seen a 40% drop in wealth since 2007"), Marc Faber discusses his increasingly imminent fears of the markets in this recent Barron's interview. 

Quoting Hussman as a caveat, "The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There's no calling the top," Faber warns there are a lot of questions about the quality of earnings (from buybacks to unfunded pensions) but "statistics show that company insiders are selling their shares like crazy." 

His first recommendation - short the Russell 2000, buy 10-year US Treasuries ("there will be no magnificent US recovery"), and miners and adds "own physical gold because the old system will implode. Those who own paper assets are doomed."

DYI Comments: NONE 

10 characteristics of debt-free people

DYI Comments:  A great article as the author goes straight into the ten traits that set these folks apart from all the rest.  Well worth your time for the author doesn't waste yours.

DYI 

Nine months of outflows for Pimco Total Return

NEW YORK (MarketWatch) -- Investors pulled $3.5 billion from Bill Gross's flagship Pimco Total Return Fund PTTRX -0.09% in January, marking the ninth consecutive month of outflows, according to Morningstar data released Tuesday. The fund lost 1.92% last year, capping a year of struggles for the fund as investors fled fixed-income investments amid rising bond yields. The Total Return Fund has a positive performance of 1.64% so far in 2014, according to Pimco's website. Nonetheless, Bill Gross maintains that there's money to be made buying bonds with short duration. In particular, he is fond of Treasurys with maturities between four and five years. 

DYI Comments:  Poor performance certainly will have a big effect on flows in or out of mutual funds. There is a secondary issue here as well and it is called performance chasing.  With stocks moving up sharply over the past 18 months Pimco Total Return mutual fund owners just had to get in on the action.  Of course this is also a symptom of a market forming a top when average Joe chases performance.

DYI

'Ugly correction' coming: Dennis Gartman

"You can't say that a bear market has started until you've broken the trend lines—until you have rallied back, failed again, start to move lower. I'm not willing to say this is a bear market at all," said Dennis Gartman on "Fast Money." "I just think you're going to have a very severe, very substantive and really quite ugly correction that will probably make a lot of people wail and gnash their teeth before it's done." 

As a result, Gartman thinks the S&P 500 index could fall 15 percent from the high reached last week, testing the 1,475 level on the downside.

DYI Comments: NONE 

Friday action leaves Dow Jones Industrial Average down for January and with a “sell” signal

U.S. stocks posted a down week and a down January as investors fretted over poor earnings reports, weakness in emerging markets and the ongoing tapering of the Federal Reserve’s bond buying program. 

Overall, a down January can be a bad omen for stock markets as the StockTraders Almanac’s “January Barometer” says that “as goes January, so goes the year.”

DYI Comments: NONE

ISM Numbers are Here....All in All, LOUSY....Long Awaited Recession?? Too Soon to Tell....

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The January PMI^® registered 51.3 percent, a decrease of 5.2 percentage points from December's seasonally adjusted reading of 56.5 percent. The New Orders Index registered 51.2 percent, a significant decrease of 13.2 percentage points from December's seasonally adjusted reading of 64.4 percent. The Production Index registered 54.8 percent, a decrease of 6.9 percentage points compared to December's seasonally adjusted reading of 61.7 percent. Inventories of raw materials decreased by 3 percentage points to 44 percent, its lowest reading since December 2012 when the Inventories Index registered 43 percent. A number of comments from the panel cite adverse weather conditions as a factor negatively impacting their businesses in January, while others reflect optimism and increasing volumes in the early stages of 2014."

DYI Comments:  Employment, production and inventories all contracted.  All in all, lousy numbers.  It seems that the market is not buying the excuse of a harsh winter for the contracting numbers.

DYI  

Pushing Luck 

John P. Hussman, Ph.D.

Needless to say, there are endless arguments as to why this time is different, just as there were at each of those other peaks. The present, uncompleted half-cycle is being used to argue that historical full-cycle relationships no longer hold. It’s certainly true that quantitative easing has allowed the market to ignore even extreme variants of overvalued, overbought, overbullish conditions that have historically been resolved much more quickly. Similarly extreme conditions emerged in February and May of 2013 without consequence, and lesser variants have appeared sporadically for 2-3 years. There’s no question that the suspension of historical regularities in this uncompleted half-cycle has destroyed my credibility with those who don’t take historical evidence seriously in the first place – despite losing half of their assets in 2000-2002 and 2007-2009, and I expect will shortly do so again. Speculators have been luckier than they may realize, and are now pushing their luck. 

Still, nearly all of the current disputes about valuations, profit margins and so forth can be settled by an evaluation of the historical evidence. The unsettled arguments are the ones that require the present to depart from history against a century of evidence. There are two main beliefs here: that profit margins will remain elevated dramatically above norms that have been revisited in every cycle, including the two most recent ones; and that strenuously overvalued, overbought, overbullish conditions can be sustained indefinitely. These beliefs are identical to those in 2007 that we thought were settled by the 55% market plunge that followed. Investors have become speculators, and now rely on both, in the face of the same conditions that have repeatedly emerged at the most memorable market peaks in history.

DYI Comments:  Valuations today (Shiller PE10) stand at approximately 55% of the year 2000 top and 76% of 1929.  Between the two aforementioned speculative bubbles the market on average is 2/3 of those tops.  Where it gets interesting is the other market tops of significant preponderance.

1907 Jan ...20.10
1929 Sept..32.54
1937 Feb...22.23
1966 Jan ...24.06
1999 Dec...44.20
2007 May..27.54

January of 1907 and January of 1966 are significant SECULAR TOPS.  Today's market is now above both of them in terms of the Shiller PE10.  All in all, for the long term investor this is a lousy time to be holding or purchasing stocks of any significant amount.

DYI  

Bonds Outperform Stocks in Best Start to a Year Since 2008

Bonds beat stocks last month for the first time since August as fixed-income securities worldwide enjoyed their best start to a year since 2008. 

The start of the year in financial markets went as almost no one expected, with fixed-income assets worldwide posting their biggest January returns since 2008 and equity prices falling the most since 2010. Gold, given up for dead in 2013 as prices tumbled 28 percent, rallied.

The rally in bonds worldwide followed last year’s 0.31 percent loss, the first since 1999, according to the Bank of America Merrill Lynch Global Broad Market Index.

DYI Comments:  Despite the sub atomic low rates long term bonds are slated to out perform stocks purchased or held today for the next 10 years.  That is not saying much due to the low interest rates creating the low returns on bonds.  Stocks are far worse with an estimated average annual return around 1% to 2%.  Long term corporate bonds are in the 5% neighborhood having a chance of out performing stocks by 80% to 100% (2% stocks vs 4% bonds).  DYI's EYC Ratio (see prior post) is at a scant 0.87 indicating a terrible time to purchase stocks.

DYI