April 16th, 2014
Buy the Dips? Not Always. More Selling Coming.
by Michael Clark, Seeking Alpha
A Lesson in Political History, by My Account; Followed by A Description of the CGTS Stock Selection Process
Yesterday a fresh wave of selling hit the markets. This did not surprise us. We are overwhelmingly short this market.
I read on the second day of the selloff a story on the web: "Capitulation Already?" The gist of the article was that after two days of selling 'reason' had returned to the markets; the bull rally would continue. I truly believe that today REASON IS SELLING THIS MARKET.
I don't wish to re-hash all the reasons this market should not be appreciating. Earnings are being fixed, staged. First you dumb down earnings expectations as much as you can. Then when you beat expectations, it is taken as a positive. This is unreason (I was going to say insane, but that word is misused too often).
The Fed has spent $4 trillion dollars to keep this so-called Bull Market going. The Fed has spent more than $4 trillion, its balance sheet, because it has also fixed interest rates at zero for four years, essentially donating to Wall Street free money to buy back shares and to refinance debt. At the same time the Fed has been buying all the bad loans the banks have wanted to sell (this is where the original $4 trillion comes in), which includes US Treasuries, in order to steer people into stocks and housing. It's a giant ponzi scheme.
An audit of the Fed would also show the Fed as having given billions of Americans' money to banks and bankers all over the world. This would be justified in many noble intentions, I'm sure -- we are all one world; saving the global economy is saving America too. The truth of the matter seems to be that a global elite wants to transfer sovereignty away from individual countries to international banking. True, individual counties do not have such a great record of trusteeship of the Earth, having chosen war, genocide, cruelty, theft, slavery and many other forms of tyranny in the name of national sovereignty. I remember the movie 'Network' from the 1970's - and the message was, essentially, if the corporations are in charge there will be no more war because war will not be good for business and business (making more money) is ALL that corporations care about.
The transfer of national sovereignty from individual nations to international banks has been happening under all parties, communist and capitalist, Islamic and Christian, democrat and republican. Why? Well, banks pay terrific bribes to gain power. It's all about bribery. And our banks better stewards of world health than individual nations? We remember similar political structures during the heyday of feudalism. Feudalism wasn't so great for the peasant class. We read about the rich .1% and the poor 99.99%. That is feudalism.
The Democratic Party in America was always, during my life, since 1950, at least, the party of the poor. The Democrats always defended to have-nots, the weak, the broken, the unfortunate. But that all changed after Ronald Reagan's election. Suddenly the American Dream was re-phrased into a picture of entrepreneurial heroism. The conservative businessman (capitalist) was the hero, the agent of God; the liberal 'thinker' (communist, labor unionist) was not only weak, a weakness bordering on treason, but they were also failures under the terms of 'the American Dream' contract. If one was noble, heroic, conservative, worked hard, believed in the dream, one would succeed - it was really a matter of positive thinking. The loser as a negative thinker; and he, as a failure, a shadow of the Day-Light figure, deserved no help from the society. God helps those who help themselves. Sinners do not deserve help until they become winners; convert to conservative entrepreneurialism. Capitalism and Christianity were somehow linked.
This, however, suggested that getting rich, the American Dream, and the contract with God were all the same. This created an equation where Greed was equivalent to both America and to religion. This suggested that getting rich was the end; and the American Dream was the means. Ethics turned a shade of gray. Cheating to get rich was suddenly a more practical expression of 'how things work' on the Earth. If you were rich, God was blessing you. We remember Lloyd Blankfein's claim that "Goldman Sachs was doing God's work."
Apparently Jamie Dimon at JP Morgan was not doing God's work. Here is a list of crimes that Dimon and Morgan essentially admitted committing in order to general billions of dollars of profits, through cheating and stealing, including fines in the billions of dollars to make these charges (and crimes) go away:
Dec. 4, 2013 - $110 million (€80 million) - As part of a settlement between the EU and six banks, J.P. Morgan agreed to settle for its alleged role in the manipulation of the Japanese yen version of Libor in 2007.
Nov. 19, 2013 - $13 billion - J.P. Morgan settled civil claims with federal and state agencies over its underwriting practices and its sale of mortgages before the financial crisis, as well as what was sold by Bear Stearns and Washington Mutual. $4 billion of the settlement was set aside for distressed homeowners. The bank admitted to deceiving investors about the quality of its mortgage underwriting.
Nov. 15, 2013 - $4.5 billion - The bank paid $4.5 billion to a group of 21 institutional investors including BlackRock and Allianz SE to settle losses from mortgage-backed securities that J.P. Morgan sold them before the crisis.
October 16, 2013 - $100 million - The bank paid the Commodity Futures Trading Commission to settle charges related to its so-called London Whale trades.
Sept. 19, 2013 - $920 million - In settlements with the OCC, the SEC, the Fed and the U.K. Financial Conduct Authority, J.P. Morgan agreed to pay a total of $920 million to settle all claims about its management and oversight of traders involved in the London Whale debacle. The bank also admitted wrongdoing in the matter, a trade that cost the bank more than $6 billion.
Sept. 19, 2013 - $389 million - The bank paid $80 million in fines and refunded $309 million to credit-card customers to settle regulators' charges that it harmed consumers by allegedly making errors in hundreds of thousands of debt-collection lawsuits and leading more than two million credit-card customers to buy services they didn't want.
July 2013 - $410 million - FERC alleged J.P. Morgan Ventures Energy Corp. traders gamed rules that help set the cost of electricity in California and the Midwest with 12 manipulative trading schemes starting in 2010. The DOJ is now investigating the claims. The $410 million included a $285 million fine and the bank agreed to give back $125 million in profits.
January 2013 - $1.8 billion - In two separate agreements, the bank contributed $1.8 billion to the nationwide bank settlement on allegations the banks improperly carried out foreclosures during the housing crisis, including employing so-called robo-signers. The bank also agreed to contribute $3.7 billion in aid to troubled homeowners and nearly $540 million in refinancing. The first part was reached in a nationwide settlement in February 2012.
November 2012 - $269.9 million - The bank settled with the SEC over the creation and underwriting of mortgage-backed securities.
August 2012 - $1.2 billion - The bank disclosed in a filing its share of a broad settlement over interchange allegations against the banks and Visa and Mastercard.
Of course, Goldman Sachs has been paying fine/bribes to the government to let it continue operating also. Corporations that chronically break the law should lose their license to operate. This seems obvious to me. When one steals $100 billion, why not pay $1 billion or even $10 billion in punishment, if that is the only punishment.
I am clearly off on a tangent again, something for which I was banned by Seeking Alpha in the past. Tangents are not acceptable to good journalism, I realize. I am a poet, not a journalist. And tangents are the very nature of poetry. That is my argument.
To make a short story even longer: in the 1980's President Bill Clinton went to the Wall Street banks and offered to sell his soul to the devil for enough money to compete with the Republics in the political football game of democracy. Unions had financed Democratic wins in the elections from the 1960s through the 1980s; but Reagan had changed things. The unions were being dismantled; good-paying manufacturing jobs in America were being shipped to China, to Vietnam, to South America, to Mexico. Not only were the Republicans winning this war to destroy the unions, they were also winning the war to destroy the American worker. The American worker was the enemy of Wall Street. The more power the American worker had, the less power Wall Street had, to constrict costs and to expand profits.
Clinton sold the Democratic Party to Wall Street, working to destroy the Glass-Steagle separation-of-powers act between banks and hedge funds and investment banks and insurance companies. This was Wall Street's dream. Now, suddenly, after nearly 70 years of no depressions, of no banking catastrophes (except, of course, that little Savings and Loan crisis under Reagan, which resulted in massive losses for ordinary Americans, and massive gains for individuals in the savings and loan business), Wall Street could begin to operate as a giant casino, even being allowed to buy insurance companies who could insure the parent company against investment losses.
The best part for Wall Street was that they now owned both parties. It no longer mattered which party won the White House or the Congress. Wall Street owned both parties.
I am not suggesting that this process is 'unnatural'. In fact, it seems to be very natural. Marx and Hegel, before Marx, suggested that mental and cultural development followed/follows this process. There is a thesis, an idea, a political party or an individual embodying an idea, who or which creates its opposite out of its own nature, and through the law of duality or dialectic. These opposites resist one another until they eventually merge and become one, united - so similar as to be indistinguishable. This is what the 2001 Day-Cycle apex was also about. Unity of an idea; the opposites uniting.
The next stage will be a new duality, a new division. A party will splinter from this unity. Perhaps the Tea Party is that splinter party. It will be young and energetic and will steal life from the old unity, establishing a new duality which leads again to opposition and division, very much as a cell divides in biology. Life starts over again.
We remember when the Democratic Party was the conservative party of mostly southern land owners. And the Republican radicals and the anti-slavery party were led by Abraham Lincoln.
So, that is how we ended up in this mess we are now in. Short story long.
How low can stocks go? Very low. Let's not forget that Japanese stocks lost over 80% after their Housing Bubble burst.
Will that happen to us? We are clearly doing some things differently than the Japanese did. But we are also doing much of the same things the Japanese did. Japan had about five iterations of QE (Quantitative Easing). We have had three versions of QE. Now we are backing away from QE. But that doesn't mean more won't come.
The chart below suggest that the Nikkei is topping again. Prime Minister Abe's revolution (that is a laugh! a revolution to do what, to keep Japanese people spending money they don't have!) is a failure. Debt is the issue. Debt needs to be destroyed. Attempts to protect the 'rotting debt' in Japan - bad debt is very much like a body rotting with disease - in order to protect the society from negative change - this protecting of the status quo by throwing money into the black hole DOES NOT WORK. In the end this will be apparent to everyone. If we choose our hour in the Sun, if we choose to be the Hero that builds the prosperous world, we must also experience the death of this world. The clock is exact. Every 36 years we have a deflation/depression that lasts for 18 years. After these 18 years of destruction, we get to start over, and build a better version of the last model.
In 1911-1929, we built a better model of the world. From 1929 to 1947, we devoted all our energy to destroying that world we had created. In 1947-1965, we build a better model of the world. There is an evolution in form, driven by the creative model of the machine, man's vehicle for change. From 1965-1983, we destroyed that world also. Levity (anti-gravity) is a metaphor for creation; the power to rise up, as a plant rises during growing season, as cities rise up into the air -- as the Tower of Babel rose in to the heavens. Gravity is a metaphor for the 18 years of deflation, destruction; war and the destruction of cities is another one. The plant that gives up its fruit and returns to the Earth is another metaphor, burying its seeds, preparing for the next growing season.
Agrarian cultures understand the natural philosophy of the Wisdom Religion. This wisdom is alien to Urban cultures, which see everything is terms of will, science, reason, and choice. A metaphor of the Growth Cycle is the city, the plant bearing fruit, the male erection. A metaphor of the Death Cycle is nature, and the Wisdom Religion itself.
The Reagan rebirth era, creation, evolution, ran from 1983-2001. The Creators panic when their time ends. They hoard. They keep interest rates down too long. They will do anything to avoid the appearance of Mephistopheles, who claims his right to the Soul of Faust and all those creators who signed the contract allowing them to become rich and powerful during the Growth Cycle.
In 2001, Death re-appeared. Death is always with us. But creation, or incarnation, seems to push Death away from Life. The creation of the city is an act of this: walls around the city to keep Death/Nature out. Then, suddenly, Death appears in the city, in the form of a violent attack on the Twin Towers buildings, on the Pentagon, on the White House. This is a fact, a historical event; but it is also a symbol of something.
I WILL outline what America needs to do to survive the next 6 years. This survival is NOT guaranteed. We are heading into the most difficult period of darkness. 2010-2019 will be the darkest of the three seasons. 1983-1992 is the rebirth stage, the birth of the Hero; Reflation in economic terms. 1992-2001 is the growth stage, the triumph of the Hero, who becomes the King; Inflation in economic terms. 2001-2010 is the harvest stage, the death of the hero; Disinflation in economic terms. 2010-2019 is the underworld experience of the hero, Hades, Hell, the triumph of Darkness. 2019 is Midnight, the darkest part of the Day; it is the beginning of Winter, the darkest part of the Year. 2001 was Noon; 2001 was the beginning of Summer.
Japan has done all the wrong things, for many of the right (moral, compassionate) reasons. Japan is now desperate. It has the highest debt levels in the world (in the history of the world?). It has tried one last round of easing (Japan should have begun slowly tightening in 1989), in an attempt to find the easy way out. There is no easy way out.
CGTS Market Timing Signals: What Is the Process We Use?
Let's change pace. Each day we update our 500 issues we follow with high, low, close, and volume data. Our process is simple. Since our most important indicator is our T11 Sunmarry indicator, we want a list of stocks that are either appreciating or falling in terms of T11 Sunmarry.
T11 Sunmarry is an intermediate-term trend reading. We have configured it so that it moves between -10 (negative) and 10 (positive). We tell our computer to find any issue that is moving either up or down. This is the kind of list we get.
We sort this list according to the T11 Sunmarry indicator. And we include the T11 Sunmarry day-to-day differential to see if it is rising or falling.
The T11 Sunmarry rises from -10 to 10 in a bull move. It can then stay at +10 for many days.
We look at the charts of all these stocks. Several issues jump out at us. VIX. The VIX is very difficult to trade. It is an index composed of option ratios puts versus calls. It tends to be very volatile and very short-lived.
T11 Sunmarry (blue line, second pane from the top) is clearly rising, which is a positive for VIX - and probably a negative for stocks. Note how the short-term trend is bending up, because of the volatile buying of put options (and the dearth of buying of call options) in the options markets.
We look at our list of stocks for new positions. T11 Sunmarry is always correcting itself. It is a perfect indicator, is always perfecting itself. So one always loses a few days on either side of a T11 Sunmarry change of direction. Our scan looks at a full week of changes, since we know its turn-accuracy is limited.
JO (Coffee) is a buy.
There are four Chinese banks at the top of our list. We like all of them as trades. We are catching them a bit late; T11 Sunmarry is already at +10. This means we have missed the true bottom by a few days. This is not usually an issue. We like to look at stocks as they hit +10 (or -10) for this often gives the stock a change to settle into a pattern. When this happens, we then check 1) accompanying trends to make sure the patterns are bullish (or bearish) - higher highs and higher lows (or the opposite) - and 2) check where the price is relative to the Bollinger Bands. The Hong Kong back below looks to be wonderfully place for appreciation.
ELNK, Earthlink, provides us an example today are a shortsell signal engendered from a rising T11 Sunmarry reading. When the T11 Sunmarry rises and all the trends are negative, this is signaling what we expect to be a failed and a short-term rally, inconsequential. This can be acted on as a short-sell signal.
SEARS (SHLD) is again a short.
Best picture of the day is probably this shortsell reading for ILMN, Illumina. T11 Sunmarry is topping, after a dismal rally attempt. See the broken down trends in the third pane from the top.
One could buy September puts on ILMN if one were interested. Let's price which put options is cheapest.
Out-of-the-money options seem cheaper. They are not. They have no value when one buys them and they only gain value if the issue moves a lot. For instance the ILMN 125 Sept Put only costs 11 points ($1100 per put) - but it is worthless when you buy it. It only has time-value, which decays instantly.
In-the-money options seem more expensive. But, in truth, the September 155 put is the cheapest. It costs 25.11 ($2511) but it is worth 19.26 at purchase, and in fact costs only 5.85 points or $585 per option when one buys it.
I think one always wants to buy the cheapest option possible. Note how the cost goes back up for Sept 160 puts, back up to 10.47 points.
Ok. You've probably had enough. There will be a market bounce. But, at the moment, US stocks are decidedly bearish.