Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

Month: June 2014

NEW$ & VIEW$ (13 JUNE 2014)

Sluggish Retail Sales Cloud Hopes for Breakout Growth

Retail and food sales rose a seasonally adjusted 0.3% from the prior month, the Commerce Department said Thursday. That largely reflected a 1.4% jump in auto sales. Sales of other goods rose just 0.1% from April.

March and April saw stronger spending as the economy rebounded from a harsh winter. Retail sales—not adjusted for inflation—over the past three months were up 4.3% from a year earlier, on par with the 4.2% rise in sales during 2013 but lagging behind the 5.1% rise in 2012. (…)

May retail sales were lower than economists had expected, but April sales were revised up to a 0.5% gain from the initial estimate of 0.1%.

Don’t be mislead by headlines, sales are strong: +1.5%, +0.5% and +0.3% in the last 3 months. That’s +9.5% annualized. “Control” sales (ex autos-related and building supplies), last 3 months sales are up 4.9% annualized. Markit agrees:

imageRetailers are on course for their best calendar quarter in terms of sales for over three years, providing further evidence that the US economy is warming up from the cold spell earlier in the year. So far in the second quarter, retail sales are up 2.0% on the first quarter, which would be the strongest quarterly gain since the first quarter of 2011.

The increase follows a modest 0.2% rise over the first quarter as a whole, a weakening that had been widely linked to shoppers being deterred by extreme winter weather across many states.

Weekly chain store sales continue to show Y/Y growth rates in the 2.7% range, up from the 1.5% range during the first 4 months of the year:

image

WSJ Survey: Economists Optimistic Stage Is Set for Pickup in Wage Growth Economists are increasingly looking for wage growth to pick up in coming months, a long-awaited development that would put more money in the pockets of consumers and could spur accelerated growth in the broader economy.
U.S. Producer Prices Fall 0.2% in May A gauge of U.S. inflation ticked lower last month, a sign that price pressures remain tame amid subdued economic growth.

May producer prices were up 2% from a year ago.

May’s report showed inflationary pressures slackening after building in the prior two months. Producer prices in April rose 0.6% from the prior month and 2.1% from a year earlier. April’s annual pace of increase was the fastest in two years.

Weakening inflationary pressures were broad based in May, though the price declines were led by food and energy prices. Excluding food and energy, May producer prices were down 0.1% on the month.

U.S. Import Prices Up Slightly on Oil Costs U.S. import prices posted the first year-over-year gain in nearly a year last month, a sign of a slight increase in inflation pressures across the U.S. economy.

U.S. import prices increased 0.1% from the prior month, the Labor Department said Thursday. From a year earlier, prices were up 0.4%—the first annual gain since last July.

Nonpetroleum import prices declined 0.1% on the month. (…)

The small gain in consumer prices coincides with costs for products imported from China increasing 0.3% in May. That was the largest monthly increase since October 2011. Still, from a year earlier prices for Chinese goods are up only 0.5%. (…)

Non-petroleum import prices are down 0.1% in the last 3 months.

Container Exports Weak

imageOcean container exports fell 1.5 percent in May after falling 8.7 percent from March to April. Exports to China ticked up 1.4 percent this month after four months of decline, but are still 31.5 percent lower than just five months ago. Domestic demand in China has been slower than predicted. Additionally, exports to the Asian
region as a whole, including Taiwan, South Korea, Japan and Singapore, experienced double‐digit declines. Exports dropped to 16 of our top 25 trading partners in May. Overall, ocean container exports have fallen 7.3 percent in 2014.

The International Longshore and Warehouse Union (ILWU) is engaged in contentious labor talks with the Pacific Maritime Association as their current contract expires at the end of June 2014. It is unlikely that these issues will be settled before the contract expires, so many shippers are accelerating orders in anticipation of service disruptions. In fact, carriers serving West Coast ports have already announced a congestion surcharges between $800 to $1,000 in the event of a work stoppage or slowdown. The last ILWU contract dispute, in 2012, resulted in a 10‐day work shutdown before the President invoked the emergency provisions of the Taft‐Hartley Act to force everyone back to work. Expect to see an uptick in containers moved in June and even early July as workers are likely to continue to work without a contract if talks are still progressing. Canadian ports are the likely benefactors in the event of a strike U.S. (Cass)

Mixed Picture for China Economy China’s economy is struggling to find equilibrium, with government stimulus measures gaining traction last month while the vital housing market continues its swoon.

(…) Value-added industrial production, which measures an economy’s manufacturing, mining, utilities and other output, rose 8.8% in May from a year earlier, compared with the 8.7% year-over-year increase in April, according to the National Bureau of Statistics. Industrial production also increased 0.71% in May from April, bureau data showed. In April, it climbed 0.82% from the preceding month. (…)

Retail sales posted a 12.5% rise from the year-earlier period, slightly better than an 11.9% year-over-year increase in April, according to the bureau.

Housing sales in the five months ended May fell 10.2% year-over-year to 1.97 trillion yuan ($317.3 billion). This compares with sales of 1.53 trillion yuan in the four months ended April–down 9.9% from the same period of 2013. The statistics bureau doesn’t issue data for individual months.(…)

Property investment in the first five months of this year rose 14.7% to 3.07 trillion yuan compared with 16.4% growth in the first four months, while construction starts in the January-May period measured by project size fell 18.6% to 599.1 million square meters. This compared with a decline of 24.5% to 311.8 million square meters in the first four months. (…)

On other fronts, fixed-asset investment in nonrural areas of China rose 17.2% in the January-May period compared with the same period a year earlier. The rise in the closely watched indicator of construction activity was a tad slower than the 17.3% increase recorded in the January-April period.

More from the WSJ:

The labor market, which is difficult to gauge because of defects in official government measures, seems to be holding up, if not robust. A quarterly survey of over 4,000 employers by Manpower Group found the hiring outlook eroded slightly, but remains above six-month ago levels. Zhaopin.com, an online recruitment firm, said job listings in May grew 41% from a year earlier.

The leveling off is thanks to a series of government measures. A slight loosening of the lending taps saw credit growth, known as total social financing, rebound in May. There was also accelerated government spending, which grew 25% last month over last year’s level, after rising just 10% through the first four months of the year. That fed into increased spending on infrastructure projects. A rebound in exports, supported by the yuan’s weakness this year also might be at play.

The crucial property market continues to suffer, though slightly less than before. New-home sales declined 11% in May compared with a 15% decline in April. Property starts dropped 7.9%, less dire than April’s 15% drop and March’s 22% drop. That said, unsold inventory of apartments rose again last month, and is now a quarter higher than a year ago. Prices have only started to drop in many cities.

Chinese Cities Quietly Loosening Shackles on Housing

Shh! As the country’s property market starts to deflate, China’s cities may be relaxing their property curbs. But it doesn’t mean they want too many people to know about it.

(…) Larger Chinese cities like Shenyang are relaxing their property policies, but want to do so quietly. Officials are loath to publicize their efforts to ease curbs for fear it would seem a tacit acknowledgement that the local economy has hit the rocks.

This week, Shenyang—an economic hub and the capital of north China’s Liaoning province—grabbed the spotlight in local news and online, after property consultants and agents said that the city had revoked restrictions on multiple home purchases. (…)

Commodity-Backed Loans Add to Surge in China’s Borrowing

(…) As Chinese authorities tightened credit at home in the past year, local firms instead looked abroad for financing. Asian-Pacific banks alone had $1.2 trillion in loan exposure to China at the end of 2013, up two-and-a-half times from 2010, according to Fitch Ratings.

A chunk of the borrowing has been by Chinese firms taking out short-term overseas loans backed by commodities, part of an effort to lock in gains by borrowing offshore at lower rates, and investing the money at higher rates on the mainland.

This lending has complicated Chinese policy makers’ attempts to slow rapid credit growth in the nation’s so-called shadow banking sector, a network of lenders outside of formal channels. Because many of the loans are denominated in foreign currencies, the use of offshore funds could also increase borrowing costs for Chinese companies if the yuan depreciates further this year. (…)

Foreign banks have stepped up commodity-backed lending to China in recent years, a profitable business that now is looking increasingly shaky. These banks, including Standard Chartered STAN.LN -1.69% PLC and Citigroup Inc., C -1.11% have made loans worth hundreds of millions of dollars backed by collateral held in Qingdao port, according to people familiar with the matter. A portion of these loans were made to entities linked to Decheng Mining Ltd., a Qingdao trading company, the people said. The lenders are trying to determine whether Decheng Mining used the same collateral for multiple loans. (…)

Concerned by developments—and the possibility of widespread multiple pledging of collateral—foreign banks have begun to withhold new letters of credit used in commodity-backed lending, Western bankers and Chinese metal traders say. (…)

Chuck Clough on China

(…)  it is clear that the boom in China’s “shadow banking” has raised much concern but, as HSBC reported recently, the size of this sector is still small relative to the size of the Chinese economy. Shadow banking in China is just 25.8% of GDP as compared to 165.9% in the United States, 183.7% in the Euro area and even 354.4% in the UK. Therefore, we see no reason to panic and believe that the current challenges need to be put into perspective. China’ economic conditions are certainly not ideal but they look less fragile than in the past and the risks were much higher in previous crisis than now. China is now much more able to respond to shocks: the fiscal policy could be flexible if needed, since public finances look healthy. The average budget deficit has been just 1.2% of GDP since 1980 and government revenues grew 18.6% per year between 1994 and 2013 – faster than the 15.1% nominal GDP growth. Foreign reserves have now reached almost $4.0 trillion, and even monetary policy could be loosened if necessary as the large commercial banks reserve requirement ratio stands at a 20% high level.

The government’s bottom line is employment, which for now remains strong. We know that according to current calculation, each percentage point of real GDP growth creates 1.6mn jobs. A 7% GDP growth rate remains the minimum growth rate to absorb the 7 million new graduates arriving to the labor market every year plus other new job seekers and maintain stable unemployment. Urban unemployment remains very low at around 4.3%. So this looks to be the floor under which we can expect that the growth rate of the economy for now. This also explains why the government intends to give a more decisive role to the private sector since it is estimated to generate 90% of new jobs created in the country and account for 80% of urban employment. We expect more measures in favor of the expansion of the private sector to be announced in coming months. As they will contribute to support the economy, they should be welcome by investors whose sentiment
currently looks disconnected from the reality.

In the U.K.:
SENTIMENT WATCH

Rothschild Wealth Management:

Although valuations are starting to look stretched following an extended period of strong returns, we continue to favour equities as the most attractive asset class for the following reasons:

  • Abundant liquidity and repressed interest rates in our “muddling through” and “economic renaissance” scenarios continue to support the markets.
  • Improved earnings prospects in our “economic renaissance” scenario should also boost equity prices despite the prospect of higher interest rates.
  • This pattern applies particularly to the US market. It is the most overvalued region but equity prices could continue to rise if our “economic renaissance” scenario becomes increasingly likely.
Equity bulls rest case on low inflation Risks to watch for are higher oil prices and lower euro

(…) From the perspective of bulls, all the ingredients for an extended rally over the summer are blending nicely.

The improving tone of the economy, led by the jobs market, is behind much of the recent optimism for equities, with investors more confident that growth during the second half of the year will rise north of 3 per cent. Even this week’s disappointing retail sales report for May was mitigated by an upward revision for the prior month.

Helping investors look on the bright side of each data release is their faith that current valuations for the S&P look appealing once the low level of inflation is taken into account. With earnings growth still forecast to rise sharply in the second half of the year, valuations are seen having the capacity to run higher, providing a tailwind for the market.

Scott Minerd, global chief investment officer at Guggenheim Partners, says past periods of inflation running below 2 per cent have been accompanied by the average price to earnings ratio being around 19.6 times, versus the current ratio of 17 times. (…)

Punch Sounds like somebody has heard of the Rule of 20…

Benign Fed policy entails keeping market volatility anchored near its present low level, while a current market mantra among bulls states how, in past interest rate cycles, the S&P has rallied some 20 per cent during the year before rate hikes finally begin.

The current supportive tone of central bank policy in the US, and particularly in the eurozone, matters greatly for equity sentiment. Another talking point at the moment is how bull markets usually end at the hand of rate hikes or, in the words of Sir John Templeton, “mature on optimism and die on euphoria”. (…)

The obvious question is what are the bulls missing? While the usual suspects for a hefty market correction appear dormant, what other forces could spark a bumpy summer?

For starters, rising oil prices and a sharply weaker euro could jolt equities, argues Nicholas Colas at ConvergEx Group. (…)

A dramatically weaker euro in the region of $1.20 will reduce unhedged foreign earnings for a host of large-cap S&P 500 companies. (…)

Sad smile Short-Term Breakout for Oil

As shown in the chart below, oil has had trouble getting above the $105 level so far this year.  $105 has finally broken today, though, as the situation in Iraq has traders bidding the commodity up.

Looking at oil from a longer-term perspective shows that it has a few more resistance hurdles to clear before a major breakout occurs.  That being said, it has been making lower highs and higher lows for the past few years, which eventually leads to a big move in one direction or another when the channel breaks.  If it breaks to the upside, watch out.

NEW$ & VIEW$ (12 JUNE 2014)

SMALL BUSINESS SENTIMENT: IMPROVES A BIT

…but seems to be breaking out, finally!image

NFIB owners increased employment by an average of 0.11 workers per firm in May (seasonally adjusted), the eighth positive month in a row and the best string of gains since 2006. Fifty-five (55) percent of the owners hired or tried to hire in the last three months and 46 percent reported few or no qualified applicants for open positions. Twenty-four (24) percent of all owners reported job openings they could not fill in the current period (unchanged), providing some downward pressure on the unemployment rate. Fourteen (14) percent reported using temporary workers, unchanged for several months. Job creation plans continued to strengthen and rose 2 percentage points to a seasonally adjusted net 10 percent, approaching “normal” levels for a growing economy, even with no growth last quarter.

Actually, job openings are at a cyclical high:image

Wages are accelerating, along with prices:image

Three percent reported reduced worker compensation and 24 percent reported raising compensation, yielding a seasonally adjusted net 20 percent reporting higher worker compensation, unchanged and among the best readings since 2008. A net seasonally adjusted 15 percent plan to raise compensation in the coming months (up 1 point), the strongest reading since 2008.

Seasonally adjusted, the net percent of owners raising selling prices was a net 12 percent, unchanged from April after an 8 point rise in March. Overall, there is more upward pressure on prices. Twenty-two (22) percent plan on raising average prices in the next few months (down 3 points) and only 2 percent plan reductions (down 1 point). Seasonally adjusted, a net 21 percent plan price hikes (down 1 point). If successful, the economy will see a bit more “inflation” as the price indices
seem to be suggesting.

I have been writing on this for a while (e.g. FACTS AND TRENDS: THE BIG WAGER in April) but more people are now writing about this:

Martin Feldstein: Warning: Inflation Is Running Above 2%

Inflation is rising in the United States and could become a serious problem sooner than the Federal Reserve and many others now recognize. There are three basic reasons why the Fed is too optimistic in its current forecast that inflation will remain below its 2% target until after 2016.

First, data indicate that prices are already rising faster than 2% and have accelerated in recent months. Second, the low rate of short-term unemployment may be creating pressure for faster inflation despite the large total number of unemployed and underemployed individuals. And third, the rhetoric of Fed officials indicates that the central bank may not react quickly and aggressively enough if inflation continues to rise above 2%. (…)

The key to the future is how the Fed will respond when prices steadily rise above its 2% target rate while the overall unemployment rate is still relatively high. A misinterpretation of labor-market slack, and a failure to create a positive real federal-funds rate, could put the economy on a path of rapidly rising inflation.

Crude Tops $111 on Iraq Unrest

(…) Iraq has been ramping up production in recent months, and has a target of 4 million barrels a day by the end of 2014. Most of the country’s oil production is in the south, far from the current violence. (…)

OPEC Dismisses Oil-Supply Concerns Rising non-OPEC oil production will be sufficient to meet growing demand in the second half of the year, the oil-producers’ group said, dismissing concerns over supply in the coming months.

In its monthly report on the oil market, OPEC—which produces one in every three barrels of oil consumed globally—forecast non-OPEC oil supply would rise by 1.2 million barrels a day in the next six months.

The rate of growth is slightly slower than in previous months but should still be sufficient to meet growing demand when combined with OPEC output and healthy stock levels, the oil-producers’ group said.

In a reflection of its view that the market is balanced, OPEC decided to maintain its official output quota at 30 million barrels a day at its semiannual meeting in Vienna on Wednesday.

Last month, however, the International Energy Agency warned that OPEC could struggle to keep up with rising oil demand as many of its member countries contend with significant supply disruptions. Output from Libya has dwindled to less than 200,000 barrels a day this year amid strikes, protests and conflicts between rival factions in the country. Iran’s oil production is still hobbled by Western sanctions, while a growing insurgency in Iraq has cut off exports from its northern oil fields.

According to the IEA, OPEC will still need to boost its output by 800,000 barrels a day in the second half of the year to meet demand.

OPEC’s output has hovered below 30 million barrels a day for most of the year, falling to 29.4 million barrels a day in March. It has since rebounded, rising to 29.8 million barrels a day last month, but remains below the 30.3 million barrels a day the group predicts it will need to produce to meet demand in the second half of the year.

Investors Face Tough Walk on Easy Street A Chicago Fed index shows financial conditions are at their easiest since 1994. That might not worry the Federal Reserve, but it should give investors pause.

The Federal Reserve Bank of Chicago on Wednesday reported that its financial conditions index, with over 100 measures ranging from debt issuance to consumer surveys on credit conditions, showed America last week faced its easiest financial conditions in 20 years. Indeed, the last time the measure was so loose was in early February 1994, the point at which the Federal Reserve began a series of rate increases that would give stock and bond investors fits for the remainder of that year.

High five (…) a separate index from the Chicago Fed suggests financial conditions aren’t especially easy after factoring in the recent performance of the economy. There will need to be more labor-market improvement, and probably higher inflation readings, before the central bank begins the process of raising its target for overnight rates.

Moreover, the easy readings on financial conditions aren’t translating into wide credit availability. Mortgage rates are extremely low, for example, but the bar that first-time home buyers must clear to secure a loan remains very high. So, although some Fed policy makers worry the financial environment could lead to credit excesses, there are scant signs that is actually happening. (…)

China’s New Loans Top Estimates in Boost for Economic Growth China’s new yuan loans and money supply topped estimates in May as the government supports economic growth while reining in shadow banking.

Local-currency loans were 870.8 billion yuan ($140 billion), the People’s Bank of China said on its website today, higher than 42 out of 43 analyst estimates in a Bloomberg News survey. M2, the broadest measure of money supply, rose 13.4 percent, compared with a median projection for 13.1 percent.

ECB Says Deflation Risk Remote

(…) But the ECB argued Thursday that weak demand weighing on prices in some countries doesn’t equal a broad-based, generalized and prolonged fall in prices across the entire currency bloc. In fact, the share of items in the euro zone with negative annual inflation growth rates isn’t “exceptionally high,” when compared with earlier episodes of deflation, the ECB said.

The central bank also cited its latest staff projections, which see inflation increasing gradually to 1.5% in the final quarter of 2016. Economic growth is projected to pick up gradually, with gains in competitiveness supporting euro-zone exports. At the same time, unemployment is falling slowly from high levels, which should help boost prices.

“While significant relative price adjustments are taking place in some euro area countries, it is highly unlikely that those processes will result in a downward deflationary spiral,” the ECB said in the report. “The risk of deflation in the euro area appears remote at the current juncture,” it added.

The Lose-Lose Tax Policy Driving Away U.S. Business There’s a good reason why American companies are sitting on $2 trillion in unremitted foreign earnings.

(Michelle Hanlon is an accounting professor at MIT’s Sloan School of Management)

The U.S. corporate statutory tax rate is one of the highest in the world at 35%. In addition, the U.S. has a world-wide tax system under which profits earned abroad face U.S. taxation when brought back to America. The other G-7 countries, however, all have some form of a territorial tax system that imposes little or no tax on repatriated earnings.

To compete with foreign-based companies that have lower tax burdens, U.S. corporations have developed do-it-yourself territorial tax strategies. They accumulate foreign earnings rather than repatriate the earnings and pay the U.S. taxes. This lowers a company’s tax burden, but it imposes other costs. (…)

In short, our international tax policy encourages U.S. multinational corporations to keep cash abroad, borrow more in the U.S. and invest more in foreign locations than they otherwise would. Everyone loses: The U.S. government gets little if any tax revenue from the foreign earnings, and shareholders and the U.S. economy are deprived of valuable resources.

(…) Threatening corporations with stricter rules and retroactive tax punishments will not attract business and investment to the U.S. (…)

The real solution is a tax system that attracts businesses to our shores, and keeps them here. Members of both parties have acknowledged concerns about the competitiveness of U.S. corporations. Consensus on what to do, however, has been elusive.

The U.K. may be a good example: In 2010, after realizing that too many companies were leaving for the greener tax pastures of Ireland, the government’s economic and finance ministry wrote in a report that it wanted to “send out the signal loud and clear, Britain is open for business.” The country made substantive tax-policy changes such as reducing the corporate tax rate and implementing a territorial tax system.

Congress and President Obama should make tax reform a priority. That could end the death spiral and send out a signal, loud and clear, that the U.S. is also still open for business.

That said, large U.S. corporations are finding ways to remain competitive. Note that this Goldman Sachs chart (via Zerohedge) uses the median S&P 500 tax rate. In effect, the S&P 500 can almost be split in two between those companies with international tax planning capabilities and the others which suffer from the higher U.S. rate.

US companies keep buying and keep borrowing 

Highly respected Andrew Smithers looks at the recent drop in U.S. profit margins but sees no immediate danger to it.

I wrote in an earlier blog that I would become more cautious about US equities if profit margins came down. We have just had the figures for the first quarter of 2014 and profit margins have narrowed. I should therefore keep readers up to date and explain why I do not think the latest data are signalling the top of the market. (…)

The new data, published on May 29, show that profit margins fell in Q1 2014 (see chart one). Nonetheless, I think it would be premature to treat this as a clear bear signal, because it was a quarter in which corporate output fell, even when seasonally adjusted, and the severe weather can reasonably be held to blame for the decline.

The decline in profit margins means that corporate cash flow has fallen, but the message on profits is more complicated. National income and product accounts profits fell on one measure and rose on another and, importantly, the measure on which they rose is nearer than the other to the way that companies report their profits to shareholders.

The main difference between the two measures lies in the capital consumption, or CC, adjustment. The national accountants include this in their preferred profit figure. It aims to show the rate of capital consumption (aka depreciation) that allows for the impact of inflation. But companies report their profits at book values, so the capital consumption without the CC adjustment is a better guide to the profits that US companies show in their accounts.

Corporate cash flow fell, whichever way profits are defined. New data on US financial accounts, the “Z.1” published earlier this month, show that this did not affect corporate share buying. Buy-backs continued unabated at an annual rate of $400bn, which is 2.5 per cent of gross domestic product. Despite slightly lower investment and a slight fall in dividend payments, non-financial corporate debt grew even faster than before and has expanded by 9.2 per cent over the past 12 months, with the result that US non-financial companies’ leverage is now at an all-time high relative to output (see chart three).

There are therefore three reasons for not worrying too much about the fall in profit margins. First, this may well prove to be a one-off event resulting from exceptional bad weather. Second, profits in the way companies look at them rose, even as measured in the national accounts. Third, there was no diminution in company buying.

There are still, of course, some good reasons for caution. The new Z.1 data allow the value of the US stock market to be updated and, as shown on my website, as at June 6 2014 with the S&P 500 index at 1,949 points the overvaluation shown by q was 88 per cent for non-financials and 87 per cent as shown by the cyclically adjusted price/earnings ratio, or Cape, for quoted shares. (…)

The Fed is tapering, but that only slows the growth of liquidity, it does not reverse it and the more liquidity there is, the less pressure there is on other, non-corporate investors to sell.

The next lot of data on profit margins, corporate balance sheets and equity buying are due in September. There seems to me to be a good chance that profit margins will have recovered or at least stopped falling, and that companies will have continued to buy shares and raised their leverage to even greater heights.

Maybe there is immediate danger to this:

Investors lap up ultra-long bonds Sales of corporate bonds maturing in 50 years reach record levels

Issuance of the so-called ultra-long bonds has been rising in recent years, but has picked up in 2014 to reach a record $33.5bn as of Wednesday, according to Dealogic. Total issuance of ultra-long corporate debt jumped to $56.5bn in 2013, a rise of 84 per cent from 2012. (…)

On Tuesday, building-supply maker Johnson Controls sold $450m in 50-year bonds as part of a $1.7bn offering. Demand for the 50-year tranche surpassed the $3bn mark, according to people familiar with the sale. The 50-year bonds offered yields 30 basis points higher than those offered by the company’s 30-year debt.

Ghost If You Only Look at One Picture Today, Make it This One

(…) To see just how many advisors have turned bullish on stocks, I really want you to look at the below chart of the Investors Intelligence Bull Index. Under the chart, you will see a black line, indicating the S&P 500.


Chart courtesy of StockCharts.com

(…) Whenever this index has gone over 60, the stock market has come down hard. (…)

Dear reader; the odds of a very deep stock market sell-off are high. Investors have become too complacent; the past has been forgotten. The economy isn’t improving; we even had negative GDP growth in the first quarter of this year. The Fed has supported this entire stock market rebound with years of artificially low interest rates and a money printing program so aggressive that mankind has never seen anything like it before. (…)

High five Mike Lombardi is quick to conclude along his own bias. In reality, this particular indicator is useless (see INVESTOR SENTIMENT SURVEYS: DON’T BE TOO SENTIMENTAL!).