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Posts tagged ‘Financial market’

The Stock Market Is Overvalued, Caution Is Warranted

buffett indicator variant

Back in 2001, Buffett said in an interview with Fortune Magazine that “the single best measure” of stock market valuation is by taking the total market cap (TMC) and dividing it by the total gross domestic product (GDP). Today, TMC is equal to 114.5% of total GDP.

At the market top in 2007, just prior to a -54% crash in stocks, TMC was equal to 104.9%. According to Buffett’s “favorite” market timing indicator, stocks are more overvalued today than in 2007.

[Must Read: Shelley Moen: Pullback Ahead]

What’s more, since the market low in 2009 (when the ratio was at 56.8%–the first time in 15 years that stocks were truly “undervalued”), the ratio has climbed for six consecutive quarters and is now nearly two standard deviations above the mean.

However, just because a market is overvalued does not mean that a crash or even a significant correction is immediately imminent. Given the unprecedented negative 2.9% adjustment to US first quarter GDP figures, I expect this earnings season is going to be quite volatile. As usual, there will be good days and bad days but overall, barring any unexpected shock, I expect the current trend to be maintained.

That being said, Dow Theory is giving us some mixed signals.

The Transports are far stronger than the Industrials. There is no divergence as such but the flat-lining of the Dow 30 index is giving me cause for concern and I will be paying particular attention over the next 3 weeks for early signs of technical breakdown.

[See Also: A Second Quarter GDP Bounce-Back May Not Be Bullish]

The bell-weather consumer staples ETF: XLP is also giving mixed signals. While the overall ETF is technically strong, T J Max, Proctor & Gamble, Wal-Mart, Costco and Visa are showing early signs of price deterioration.

Thus, all in all, I think the July earnings season will tell us a lot regarding whether the bull is going to last. I am beginning to have my doubts. Caution is warranted.

Dow Transports: Daily
dow jones transportation avg.

Dow Industrials: Daily

ETF: XLP: Daily
consumer staples

TJ Max Corp: Daily.
tjx cos., inc.

Proctor & Gamble Corp: Daily.
procter & gamble

Wal-Mart Corp: Daily.

Costco Corp: Daily.

Visa Corp: Daily.


Charts Courtesy of SharpCharts.Com.

© Christopher M. Quigley 1st. July 2014.



The Coming Derivatives Panic That Will Destroy Global Financial Markets

By: John_Rolls

John Rolls Submits, Michael Snyder writes: When financial markets in the United States crash, so does the U.S. economy.    Just remember what happened back in 2008.  The financial markets crashed, the   credit markets froze up, and suddenly the economy went into cardiac arrest.    Well, there are very few things that could cause the financial markets to crash   harder or farther than a derivatives panic.  Sadly, most Americans don’t even   understand what derivatives are.

Unlike stocks and bonds, a derivative is not   an investment in anything real.  Rather, a derivative is a legal bet on the   future value or performance of something else.  Just like you can go to Las   Vegas and bet on who will win the football games this weekend, bankers on Wall   Street make trillions of dollars of bets about how interest rates will perform   in the future and about what credit instruments are likely to default.  Wall   Street has been transformed into a gigantic casino where people are betting on   just about anything that you can imagine.

This works fine as long as there are   not any wild swings in the economy and risk is managed with strict discipline,   but as we have seen, there have been times when derivatives have caused massive   problems in recent years. For example, do you know why the largest insurance   company in the world, AIG, crashed back in 2008 and required a government   bailout?  It was because of derivatives.  Bad derivatives trades also caused the   failure of MF Global, and the 6 billion dollar loss that JPMorgan Chase recently suffered   because of derivatives made headlines all over the globe.  But all of those   incidents were just warm up acts for the coming derivatives panic that will   destroy global financial markets.  The largest casino in the history of the   world is going to go “bust” and the economic fallout from the financial crash   that will happen as a result will be absolutely horrific.

There is a reason why Warren Buffett once referred to derivatives as   “financial weapons of mass destruction”.  Nobody really knows the total value of   all the derivatives that are floating around out there, but estimates place the   notional value of the global derivatives market anywhere from 600 trillion   dollars all the way up to 1.5 quadrillion dollars.

fullarticle at source: http://www.marketoracle.co.uk/Article37882.html


EU governments should not be put in a position to compete for funds with commercial enterprises

By Florian Pantazi

Slowly but surely, the set of remedies employed in the hope of solving the euro crisis is now spreading recession from the periphery to the core of the eurozone. Austerity measures, accompanied by an increase in taxes, will bring France’s economic growth to a halt next year. Germany’s growth rate, based on its solid export machine, is also showing signs of slowdown. As the European Union is the world’s largest economy, its troubles are spreading economic stagnation to its main trading partners – China, the US, Japan and Brazil – as well.

The launch of the European Stability Mechanism (ESM), currently hailed as a kind of European monetary fund, has recently re-ignited hopes of appeasing financial markets. Alas, the only lasting solution to the euro’s woes is that of allowing EU national governments to sell their treasury bonds directly to the ECB, thus totally bypassing financial markets.

In truth, no state should be subjected to the same financial pressures and performance criteria that private corporations normally are. To give but one example, prior to 1973 the French government was able to borrow directly from its national bank at zero interest. Through the introduction of private or institutional investors into the equation, as market intermediaries between national banks and their governments, the stage is set for astute financial speculators to increase returns for their clients on the backs of states in need. Rating agencies, acting on behalf of investors, are able to exert pressure on governments to reduce expenditure on essential public services, as it has happened it the EU over the past few years.

full article at source: http://www.europesworld.org/NewEnglish/Home_old/CommunityPosts/tabid/809/PostID/3293/Apossibleexitfromtheeurocrisis.aspx

Your Liberty and Your Money

By Dan Denning

We begin with a cynical thought experiment. It’s really a conclusion  about what’s going on in the financial markets. And the conclusion  is this: the value of financial assets and currencies is being  deliberately crashed in order to transfer wealth from the public to  a small group of global elites.

Sounds crazy, right? Maybe even cranky? We’ll get to that shortly.  But first…

The typical result of credit booms and busts is to transfer  ownership of real assets and productive businesses from the public  to the insiders. In our thought experiment, the Federal Reserve  exists to make this happen in a way that doesn’t alert the public to  what’s really going on. The insiders — or anyone who knows how these  things work — sell to the public in the mania phase. The panic and  crash phase of a bust is when the public realizes the game is up……………………………….

full article at source: http://dailyreckoning.com/

Reading the tealeaves

By David Mc Williams

In terms of reading the economic tea leaves, last week’s cup of data has left behind a perplexing residue, with some good bits, some bad bits and lots of confusing bits, which could go either way. However, it is a crucial week because the evidence suggests that something very odd is happening in Ireland. The Irish bond market is decoupling from the Irish economy. That sounds weird, but let’s dig a bit to explain.

The news from the financial markets – Ireland being able to borrow again – is unambiguously good. There are a few gripes, like the interest rates, but it would be churlish not to see this as a positive – and indicative of a likely bank deal which will see a dramatic easing in the overall debt position of the state.

Obviously, there is a long road still to go, but the markets clearly believe that the bank debt mutualisation deal hinted at in Brussels last month will be delivered.

So far so good, but at the same time, the data from the real economy was awful, and the news from the banking system, as well as local credit conditions, is equally desperate.

In another development which will form the background music to the next few months, ECB president Mario Draghi has signalled that he is going to take the Germans on and has fired the opening salvos in what will prove to be a titanic battle for the hearts, minds and balance sheet of the ECB. He will buy government bonds directly.

full article at source: http://www.davidmcwilliams.ie/2012/07/30/reading-the-tealeaves?utm_source=Website+Subscribers&utm_campaign=bf7581ddae-30072012&utm_medium=email

So it has been quite a week.

Let’s deal with the decoupling idea

S&P States the Obvious

By Ron Paul

Politicians did not get much time to pat themselves on the back for supposedly rescuing the economy with the debt limit deal last week. The ink was barely dry when Standard & Poor’s downgraded the US debt ratings anyway, roiling world financial markets.  Anyone who has taken an honest look at the government’s fiscal situation, taken into account how Washington works and the direction it is going would have a very difficult time arguing with S&P’s decision, although a strong case can be made that this was too incremental a downgrade and that it took far too long for S&P to admit the obvious.

Nonetheless, the administration nitpicked over a $2 trillion “mistake.” S&P rejoined with the fact that $2 trillion here or there hardly makes a difference in the time frame under discussion.  That, if nothing else, should tell you the magnitude of the problem.  $2 trillion has become a drop in the bucket.

full article here at source:http://www.thedailybell.com/2803/Ron-Paul-SP-States-the-Obvious

Banks that think they’re casinos put us all at risk

By David Mc Williams

Anyone who worked in financial markets will know that — at its most base — the “market” is in fact only a coked up, whoring 28-year-old from Basildon on hyper-wages, with a Porsche and a Chelsea season ticket.

This is hardly the type of far-sighted leader that we should be depending on, nor the opinion we should be worried about. Has he become the arbiter of economic policy in the early 21st Century? Is this where we have got to? The young lad in London who is “shorting” the European bond market mightn’t easily find Florence on a map and his geopolitical interests might not go further than the price of a footballer’s transfer fees in the closed season and who won ‘The X Factor’…

full article at source:http://www.davidmcwilliams.ie/2011/08/10/banks-that-think-theyre-casinos-put-us-all-at-risk

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