Howard Stern on CNN’s Piers Morgan

On his career and his father

Howard Stern talks politics – running for office, and love for America

Stern tells Piers about his musical tastes, which include Miley Cyrus, and getting older.

Hat tip Josh

Category: Video

Even Oprah Doesn’t Like to Pay Taxes

Before we get too far from Piers Morgan’s debut interview with Oprah Winfrey, there was an interesting moment that may be indicative of something larger in our political and cultural landscape. At the risk of reading too much into what was clearly meant as a light-hearted comment on her wealth, let’s look at the television…Read More

Category: Think Tank

Market Capitalization as a % of Nominal GDP

Ron Griess of The Chart Store looks at the market relative to GDP: > click for larger graph

Category: Markets, Technical Analysis

Quick market perspective

To put this decline in stocks into perspective and to highlight how relentless and extended the rally has been of late, a .7%+ closing decline in the S&P 500 today would be the biggest one day fall since late Nov.

Category: MacroNotes, Markets

Housing starts mixed, construction job positive?

Dec Housing Starts totaled 529k annualized, 21k below expectations led by a drop in the single family component which fell to the lowest since May ’09. Multi family starts rose. Permits were well above estimates at 635k vs the estimate of 554k. The gain again was led by multi family where permits issued rose by…Read More

Category: MacroNotes

Total Market Cycle

Cool graphic from Alpha Scanner showing the phases of market. This is fairly straight up Technical Analysis theory as to how the market moves over time. > click for ginormous graphic Hat tip Kid Lane

Category: Markets, Technical Analysis

China, Friend or Foe?

Friend or Foe? World Economy “Big Enough” for U.S.-China Partnership
Aaron Task
tech Ticker, Jan 19, 2011”big-enough”-for-u.s.-china-partnership-altman-says-535826.html

Category: Video

What’s been priced in and what hasn’t?

There is nothing better than an earnings season to test the stock market of what’s been priced in to prices and what’s not. The S&P 500 is now up 24% since the Aug 26th close in response to a continued economic recovery but also its no coincidence the rally began the day Bernanke in Jackson…Read More

Category: MacroNotes


Investment letter – January 11, 2011


As we begin 2011, there is a newfound optimism. The stock market finished 2010 strong and economists have been raising their estimates for GDP growth in 2011 to 3.0% and higher. Although the extension of all the Bush tax cuts was a small psychological positive, since it didn’t increase disposable income, the 2% cut in payroll taxes was a pleasant surprise. With more disposable income to spend, the average worker earning $50,000 will have an extra $20 per week to spend. Despite the anticipated improvement in economic growth in the first half of 2011, the Federal Reserve is maintaining its commitment to QE2 and will purchase $600 billion of Treasury bonds. The cover story of the December 20, 2010 issue of Barron’s revealed 9 of the 10 strategists from the largest investment firms on Wall Street were bullish, expecting an average gain of 10% for the S&P in 2011. The lone non-bull thinks the market will be flat. In other words, no one was bearish. The consensus is that a self sustaining recovery will take hold in 2011, as rising confidence spurs businesses to increase hiring and invest more and consumers returning to the shopping malls. A survey of 302 global money managers in mid-December found that those expecting stronger global growth surged to 44% from just 15% in October, and the percent forecasting better profits soared from a mere 11% in October to 51%. Nothing like a rising stock market to convince investment managers of all the reasons they should be bullish!

As we have discussed on a number of occasions, the stock market is not a discounting mechanism, which anticipates economic events, i.e. recoveries and recessions. The majority of strategists and advisors who truly believe this axiom can be compared to car drivers who navigate their way by looking in the rear view mirror. If the markets are consistent in at least once facet, it is that markets always take a long and winding road. When a majority of drivers peer into their rearview mirror and reflect on how lovely the drive has been, they won’t notice their car has left the road until it is airborne and in free fall. Of course, the opposite occurs at market bottoms. All the drivers see are potholes and ditches in the rearview mirror and feel as if they’ve been driving in Death Valley without air conditioning for like forever! At every market top and bottom, the market is wrong. At the top in October 2007, the market was not ‘telling’ us that the credit crisis would be contained and there would be no recession, as most strategists and advisors believed. And at the lows in March 2009, the market was wrong in suggesting the sky was indeed falling, and not surprisingly most strategists and advisors were negative.

This is pertinent because various measures of investor sentiment reflect an excessive level of bullishness. The American Association of Individual Investors has reported an average of 30% more bulls than bears on a four week average for the last two weeks. The weekly Investors Intelligence Survey has recorded 35% more bulls than bears, for eight consecutive weeks. Sentiment hasn’t been this bullish since October 2007. For most stock market technicians this level of bullishness is clearly a sign of a top, and cause for a market decline. However, it isn’t so cut and dried in the real world.

Although we believe the current level of excessive bullishness is clearly a warning sign, it doesn’t automatically mean the stock market will suffer a meaningful decline right away. The reality is that most institutional investors don’t pay much attention to sentiment surveys. Instead, they are focused on how individual companies are performing in the space they cover, whether that is small cap, mid cap, or large cap stocks. They are far more concerned about the management quality of the stocks they own, and whether their profit estimates will be achieved. What they are not going to do is come into their office on a Monday morning and sell the stocks of companies they like and believe in, just because a sentiment survey or two is reflecting too much bullishness. If anything, a rising tide of positive sentiment makes them feel more comfortable. Most institutional money managers view cash as a negative, since it can lead to underperformance if the market and the stocks they own continue to rise. For most, it is a risk they do not want to take, which explains why most mutual funds rarely hold much more than 3% of their assets under management in cash. Currently, their expectation is that the economy will continue to improve and so will corporate profits. Until their outlook is seriously challenged, they won’t sell.

The lack of selling pressure has been a primary support for the market during November and December, and it has continued into early January. It doesn’t take much buying to push the market higher, whether the buying is coming from new bulls or short covering from trampled bears. We expected that the market would exceed the November 5 high at 1227, and likely grind higher into year end. This has occurred, but now the S&P 500 is approaching an important price level. A quick analysis of the pattern of the rally from the July 1 low will help explain this risk. From the S&P low on July 1, 2010, at 1011, the first short term high was reached on August 9 at 1129, a gain of 118 S&P points. This represents Wave 1, which was followed by a decline into August 27 (Wave 2). A strong rally into a high on November 5 at 1227 followed for Wave 3. Wave 4 ended on November 16, when the S&P bottomed on November 16 at 1173. The current rally is Wave 5, and would be equal to Wave 1 (118 points) at 1291.

A review of the NYSE chart on page 2 will show why the completion of 5 waves is often significant, especially when it is accompanied by an extreme in market sentiment. In February 2009, we thought the market was near a low because the market was completing 5 waves down from the October 2007 high and sentiment was overwhelmingly bearish. In April 2010, sentiment was fairly bullish and 5 waves up from the March 2009 low were completing. In the April 20 letter, we advised becoming more defensive in anticipation of a correction. Between late April and July 1, the NYSE fell 16.7% and the S&P 500 lost 17.2%. With the market now completing 5 waves up from the July 1 low, and sentiment overly bullish, the market is now vulnerable to a correction. Will it be a garden variety dip of 4%-7%, or something worse?

Read More

Category: Think Tank

Why Blog?

The latest spasm careening through the blogosphere tangentially referred to a minor rev share offer from Seeking Alpha, one of the major blog aggregators.  We saw the usual hand wringing discussions of “blogonomics,” as well as an article discussing the challenges of blogging (its hard). Pretty much, most missed the point (though props to Abnormal…Read More

Category: Philosophy, Weblogs