The “era of getting rich quickly is over” for both stocks and bonds, so investors should lower their expectations about how much they can earn from these investments, said bond specialist Bill Gross on Tuesday. In a Bloomberg TV interview, the founder and chief investment officer of Pimco said he continues to buy Treasurys with short duration, particularly in the range of four to five years, a bet that he says will pay off if the Federal Reserve continues to keep its benchmark interest rates low for the foreseeable future. However, other big money managers have recently begun to bet that the Fed will be pressured to raise rates, putting them on the opposite side of that trade. With turmoil in emerging markets, Gross told Bloomberg TV that developing economies like Brazil and Turkey are starting to look more attractive, but that they are still a “wild card”. As markets continue to be choppy, Pimco clients say they want safety and preservation of principal in their bond investments, Gross said. He added that Mohamed El-Erian, the Pimco CEO who recently announced his departure, could take on a public policy role next.
Personal Finance
Laura Parsons helped her son buy his first home four years ago, and she’s ready to help her daughter do the same, making her part of what many say is a growing trend across Canada, where home prices have soared 84 percent in 10 years.
“I am going to give her the downpayment,” said Parsons, 54, a mortgage banker in Calgary, Alberta, where an oil industry boom has pushed home prices to record highs. “We’re the baby boom generation, we have more money than we ever thought we would, we have two incomes, we’re saving, so I’m going to help.”
Neither the government nor the real estate industry has collected data on parental aid to homebuyers. But experts say they are seeing more moms and dads helping their children, especially in the priciest markets.
“It is increasingly common in the city of Toronto, where prices are pressing the limits of affordability, for most buyers looking to get a foot into the market,” said Steven Fudge, a sales representative at Bosley Real Estate in Toronto. The 25-year industry veteran says at least 50 percent of his buyers are bolstered by parental money.
A 2013 survey of 2,000 people for Bank of Montreal found that 27 percent of first-time buyers in Canada expect their parents or other family members to help them purchase a house.
That young adults need help with a first home should come as no surprise. Home prices in Canada hit record highs in late 2013, according to the Teranet-National Bank house price index. Industry data showed the average home price nearing C$400,000 ($358,800) in December. That’s up 10 percent from a year earlier and 84 percent from December 2003, when the average price was
C$211,768.
While the U.S. housing market is still recovering from a collapse in 2008 that triggered the global financial crisis, Canada’s market never crashed. Partly that is because prices didn’t rise as much during the U.S. boom, as Canadian lenders were more conservative than their U.S. counterparts. Continued…
- While the survey still indicated growth in the US Manufacturing sector (at a reading of 51.3), the consensus estimate called for a reading of 56.
- This was a substantial “miss” and equity markets collapsed with the Dow falling 326 points, or over 2%.
- The ISM reading, coupled with increased volatility in emerging markets such as Argentina and Turkey, have many thinking that the long awaited correction and rebalancing of growth in financial markets is upon us.
- Two questions remain – First, have the Emerging Markets entered a crisis phase or is slowing growth in the developed world a bigger issue? Second, Can the Fed continue to taper asset purchases in the wake of this volatility and possible economic weakness in the US?
…..continue reading HERE
Despite the poor start to 2014, there is still room to debate whether U.S. stocks have entered a bear market. My own forecast, made several months ago, calls for a final Dow run-up to 17622. I’d need to revisit that scenario, however, if January’s weakness gathers force in the weeks ahead. One thing’s for certain: If a bear market has already begun, the jig is up for the Fed’s crackpot scheme to borrow our way back to prosperity. It will instead be Katie-bar-the-door-time – and deflation, here we come! Japan will at last have company – not just from the U.S. and Europe, but from China, whose bubble-blowing days would not survive even a month of U.S. recession piled atop the already suffocating weight of Europe’s deepening deflation.
As for the stock market, the dam could burst at any time with unimaginably destructive power. Keep in mind that the main catalyst for rising share prices is not bulls betting on a brighter tomorrow, but bears covering short positions gone awry. Indeed, merely bullish buying is rarely sufficient to drive stocks through the thick layers of supply that accumulate after each successive new peak. It is only when those who have bet against the stock market are stampeded by margin calls that this gravity-defying feat can be accomplished. Meanwhile, as long as easy money and institutional mindset are present to keep stocks buoyant during quiet stretches, bears are held in a jittery state of alert, ready to cover short positions with market orders at the first sign of an outbreak of irrational exuberance.
Bears Cover Prematurely
The bears also tend to be too-eager buyers on the dips – exactly what we’ve seen so far this year. Each time they do so, the strength of short-covering grows a little more depleted. Also, bears who use put options to play the downside – who have probably been buying puts for years, only to see them expire worthless more than 90% of the time – are prone to cash out winners prematurely, settling for meager profits just ahead of the real trouble they’ve all been expecting more or less forever. That is exactly what happened in 1987, leaving the stock market crucially low on short-covering power after the Dow dropped an unprecedented 108 points on Friday, October 16. The many traders who took profits at the bell had failed to imagine that this was just a warm-up for the 508-point selloff that came on Monday.
This time around, no one need be told that a bear market in stocks would douse the psychological bottle rockets that have kept asset markets afloat and which were intended by the central banks to boost consumer spending via the “wealth effect”. Let stocks fall hard for just a few weeks, however, and the paper-asset world could start to unravel, subjecting mortgage rates to – heaven help us — market forces. Since inflated real estate values constitute such a big piece of the collateral, such as it is, for a quadrillion dollar card-house of dubious swap agreements and repos, its logical to assume that the derivatives market itself would be sucked into a deflationary black hole. It would almost surely happen too quickly for the central banks to take effective countermeasures.
Increasing Strain
In the meantime, virtually all instruments of paper wealth are coming under increasing strain because of a mere $10-billion-per-month “taper” by the Fed. While the change in policy has had little discernible effect on the U.S. economy, it has generated enough nervousness around the world to cause a small upward adjustment in the rates that have fed the global derivatives behemoth. Considering the size of the market, it’s conceivable that a mere 20 to 30 basis points of forced tightening could cause the whole shoddy edifice to unwind.
And that is why we should be more than a little nervous to see stocks falling for a rare change as the new year begins.
About Rick Ackerman of Rick’s Picks
Barron’s once labeled Rick Ackerman an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. But to the gang at CNBC, he’s been a pariah for the last ten years – a shoot-from-the-hip kinda guy whose irreverent style got him banned from the show after an interview on Squawk Box was alleged to have gone awry.
His professional background includes 12 years as a market maker on the floor of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader. His detailed strategies for stocks, options, and indexes have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders.
Rick Ackerman is the editor of Rick’s Picks and a partner in Blue Fin Financial LLC, a commodity trading advisor.
Recent price action in the stock market has many traders on edge. With the market closing below our key support trend line last week, the market has now technically starting a down trend.
While trend lines are a great tool for identifying a weakening trend and reversals in the market, I do not put a lot of my analysis weighting on them.
Most of my timing and trading is based around what I call INNER-Market Analysis (Market Stages, Cycles, Momentum and Sentiment). Using these data we can diagnose the overall health of the market. Knowing the strength of the market we can then forecast short term trend reversals before they happen with a high degree of accuracy.
In this report I keep things clean and simple using just trend lines. During the last three weeks we have seen the price of stocks pullback. And because 2013 was such a strong year for stocks most participants are expecting a sharp market correction to take place anytime now.
So with the recent price correction fear is starting to enter the market and money is rotating out of stocks and into the Risk-Off assets like gold and bonds.
Stocks tend to fall in times of economic uncertainty or fear. These same factors push investors towards the safety trades (Risk-Off) high quality bonds and precious metals. As more money goes from risk-on to risk-off, stocks will continue to fall and the safety trades will rise. The move by investors to select the safety of gold and bonds compared to the volatility of stocks will result in these risk plays to moving in opposite directions.
Let’s take a look at the chart below for a visual of what looks to be unfolding…
How to Trade These Markets:
While these markets look to be starting to reverse trends, it is critical that we understand how the market moves during reversals and understand position/money management.
Getting short stocks and long precious metals in the long run could work out very well, but if you understand the price action that typically happens during reversals you know that the stock market will become choppy and we could see the recent highs tested or possibly even a new high made before price actually starts a down trend. And the opposite situation for gold and bonds. Drawdowns can be huge when investing and why I don’t just change position directions when the first sign of a trend change shows up on the chart.
Price reversals are a process, not an event. So it is important to follow along using a short term time frame like the daily chart and play the intermediate trends that last 4-12 weeks in length. By doing this, you are trading in the direction of the most active cycle in the stock market and positioned properly as new a trend starts.
What I am looking for in the next week or two:
1. Stocks to trade sideways or drift higher for 3-6 days, then I will be looking to get short. Again, cycle, sentiment, and momentum analysis must remain down for me to short the market. If they turn back up I will remain in cash until a setup for another short or long entry forms.
2. Gold remains in a down trend but is starting to breakout to the upside. I do have concerns with the daily chart patterns for both gold and silver, so next week will be critical for them. We will be using some ETF Trading Strategies to take advantage of these moves.
3. Bond prices (not yields) look to be forming a bottom “W” pattern. They have had a big run in the last few weeks and are now testing resistance. I think a long bond position is slowly starting to unfold but if we look at the futures price charts for both bonds and gold, they have not yet broken to the upside and have more work to do. As mentioned before ETFs are not really the best tool for charting but I show them because they what the masses follow and trade.
Get these reports every week free at: www.GoldAndOilGuy.com
Chris Vermeulen
Author of “Technical Trading Mastery – 7 Steps To Win With Logic”
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