“Irony is the form of paradox. Paradox is what is good and great at the same time.” ~ Friedrich Schlegel

We could sum it up in two words as to why earnings recession was, is and will be a non-event; Hot Money. However, for some strange reason when it comes to the markets individuals happen to love long explanations even though in most cases the long answers reveal a lot less than the short ones do. So let’s take a look at some of these meaningless statistics.

S&P 500 companies are going to report what will turn out to be the 6th consecutive quarter of lower earnings. This is one of the longest earning slumps in over a decade and logic dictates that the markets should have been trending lower, but the opposite is taking place.

An investor following the old paradigm could not be faulted for making this statement “well then there is no way stocks can keep rising” or how long can they grow in such an environment

To get the right answer, you need to ask the right question.Such questions are irrelevant in today’s environment, and answering such questions is not going to provide you with any insights on how to play this market. One person will state it cannot rise because of the negative factors listed above. The other penguin will say it can rise because inflation is low, unemployment is low, gas prices are low and a host of other rubbish.

It would be far better to focus on trying come up with the right questions. For example:

When will central banks stop flooding the markets with money?

When hell freezes over is the answer; this means that this market will rise for much longer than most naysayers can stay solvent.

An even better question would be “what side of the market are the masses on.”

Now we are getting somewhere; the masses are decidedly negative, and that means until they embrace this market, it will not crash.

So there you have it. However, even this is not enough for many individuals. So let’s look at a few more meaningless reasons as to why earnings might be dropping.

Energy and other commodity based companies have seen their profits dive, and that is why these sectors have been the worst performing sectors for over 18 months. U.S. firms in the aggregate have reported lower earnings because energy, commodity and basic materials companies have seen their profits decimated by lower prices.  The energy sector will once again lead the way with massive losses.

A strong dollar; the dollar has been in an uptrend, and this affects multinationals profits. This is simple to understand as we in the midst of a massive currency war; a strong dollar is not okay for multinationals and vice versa.

It also affects our exports as it makes our products more expensive overseas.

Conclusion

The only two things you need to pay attention to are; We have an extremely accommodative Fed and secondly the masses refuse to embrace this market. Both developments are extremely bullish for this market.

Data that is readily available to everyone is like news; the moment you hear it is no longer news but Gossip.

“A taste for irony has kept more hearts from breaking than a sense of humor for it takes irony to appreciate the joke which is on oneself.” ~ Jessamyn West

….however by Jack Crooks: 

Gold Crushed – Bonds Crushed

Here’s the question of the day: are corporate stock buybacks fueling the stock market?

Let’s look at a couple of charts and a news report to help determine the answer.

Quarterly Stock Buybacks

Stock buybacks are at a nine-quarter low according to an Email TrimTabs press announcement:

“Buybacks have been trending lower for the past two years, which is a cautionary longer-term signal for U.S. equities,” said Winston Chua, analyst at TrimTabs. “Along with central bank asset purchases, buybacks have been a key pillar of support for the bull market.”

“The U.S. stock market isn’t likely to get as much of a boost from buybacks as it did in recent years,” noted Chua. “Apart from big tech firms and the too-big-to-fails, fewer companies seem willing to use lots of cash to support share prices.”

There are numerous references to that announcement, but until now, nobody checked to see if the relationship was in fact true.

S&P 500 vs. Volume Lows in Share Buybacks

If there is a relationship, I fail to see what it is, at least by looking at the chart.

That does not mean there is no relationship. Rather, it does not show up.

Logic would dictate that share buybacks lower P/E ratios thereby boosting earnings, making stocks look more reasonably priced.

But if reasonable P/E logic was in play, P/E’s would not be as ridiculous as they are. Then again, Wall Street charlatans point buybacks and forward P/Es as evidence the stock market is cheap.

Competing Theories

1. Stock buybacks are still sufficient to fuel the stock market
2. Something else is happening, such as another Fed-sponsored mania

#2 is a given. #1 certainly doesn’t hurt. But market sentiment is so strong now, stock buybacks just may not matter much at all.

When stock market sentiment turns, I strongly suspect buyback announcements will be meaningless.

….also:

Gundlach Says Deutsche Bank Woes Show Harm of Negative Rates

• ‘Cannot save your economy by killing your financial system’
• Deutsche would be saved, ‘but what about Credit Suisse?’

Famed bond investor Jeffrey Gundlach said Deutsche Bank AG’s slumping share price highlights the impact of the negative-interest-rate policy in Europe on the region’s lenders and may help prompt central bankers to reconsider their approach.

“You cannot save your faltering economy by killing your financial system and one of the clear poster children for this is Deutsche Bank’s stock price,” Gundlach, 56, said at Grant’s Fall 2016 Investment Conference on Tuesday in New York. “If you keep these negative interest rate policies for a sufficient future period of time you are going to bankrupt these banks.”

Europe’s banks have seen their value shrink by about $280 billion this year....continue reading HERE

….related:

What a Trump Win Means for The Stock Markets? Disaster or Buying Opportunity

Give me a few minutes of your time and I will show you how I made $2,450.00 income off my Yamana Gold shares in just 4 months, and more importantly how you can too. 

Having owned Yamana gold shares for over a year, like all gold investors, I was pleasantly surprised at the momentum that all gold stocks had in the first half of the year. Yamana Gold (TSX:YRI) started the year trading near $2.00 a share before bullishly breaking out to $5.99 by May 18^th.  Having been around the block a few times in regards to these types of stock moves, I suspected the overbought shares would eventually begin to consolidate or retrace the prior rally.

My first instinct was to ask the question if I should simply sell the shares and take my profits.  But, I was reluctant to lose my position so easily.  So I figured, if I think the stock is approaching the top end of its range, why not use the shares to make myself some income using options.

Let me show you what I did.

First off, many beginners stereo type options as risky.  I don’t look at it that way.  To me options are a tool, a tool that can be used to create risk, but also can be used to hedge risk, or to generate income. 

Here was my scenario. I owned 5000 shares of Yamana or about $30,000 of stock at the $5.99 price.  Back on May 18^th, I sold 50 contracts of the September 16^th, 2016 $7.00 covered calls which were bidding $0.49.  I made $2,450 ($0.49 x 5000) in immediate cash flow for the obligation to have to potentially sell the shares for $7.00 at any point prior to the September expiration. That represented an 8.18% cash flow income return in just 4 MONTHS!  

Well, 4 months passed, and on September 16^th, the shares of Yamana Gold were trading a $5.84, just a few cents away from the levels back in May.  The calls profitably expired freeing me from by potential obligation to sell. 

Let’s just be clear on a few points. I made this income on the shares I already owned.  In a negative interest rate world, how hard is it to find income?  Yet I made 8.18% in 4 months.  Most importantly, I never took any more risk then any other investor.   

What I know is that most investors are intimidated by options, but you don’t have to be.  The solution is easy.  You need to educate yourself. Once you do, you will realize that it is not that hard to do.  Is it time for you to take your investing skills up a notch?

Patrick will presenting two workshops in Vancouver and Calgary as part of the TMX Options Education Day. This is a fantastic opportunity to learn about options from Patrick and a number of other TMX/Montreal exchange experts:

1. Vancouver – Saturday, October 15th

2. Calgary – Sunday, October 16th

CLICK HERE to register or for more information

As a man handles his troubles during the day, so he goes to bed at night a General, Captain, or Private.” ~ Edgar Watson Howe

We would like to state that this article is not about politics but about the effect these two polarising individuals will have on the market.  Before the debate, the outlook was somewhat favourable towards the Donald and immediately the markets reacted and started trending lower. Regardless of what you think of Trump, he is having the same effect as Brexit had on the markets but in smaller doses. If he should win the election, then the reaction will be several magnitudes larger. When the poll results came in stating that Hillary fared better in the 1st debates the markets responded positively and recouped their losses; this reinforces our argument of several years that says substantial pullbacks should be viewed as buying opportunities.

From a  contrarian angle (and not a political point of view) a Trump win could be construed as a positive development; non-contrarians will demand to know why? Mass Psychology clearly states that the masses are always on the wrong side of the equation. A Trump win will create uncertainty, and the lemmings will flee for the exits; markets will pull back sharply and viola the same old cycle will come into play. The cycle of selling based on fear which equates to opportunity for those who refuse to allow their emotions to do the talking.

Trump is the fear factor and Hillary the stability factor; if Hillary wins the markets will rally and then pull back; as the buy, the rumour sell the news effect will kick in. A Trump will create a strong reaction which in our opinion will create a buying opportunity. Sell when the masses are euphoric (a Hillary win) and buy when the masses are pessimistic (a Trump) is the core tenet of Mass Psychology

Now let’s see what the charts are saying

Before the current pullback, we stated that the Dow was more likely to test the 18,000 ranges than trading to 20K as the media was turning too bullish, and that came to pass when the Dow traded momentarily below 18,000. After that, we expected the markets to rally towards the 19,000 plus ranges, but since Trump started to gain momentum again, uncertainty has gripped the crowds; in that sense, Trump has become the new VIX factor. The market should continue trending towards that direction, but trading significantly past 19,000 might be limited until the elections are over. Moreover, if his numbers improve, then expect strong bouts of volatility. If his numbers drop, markets will be less volatile and vice versa.

If Hillary wins, then the Dow will rally and then traders will bank their profits so we should have a decent pullback, but the reaction should be muted. If Trump wins, then there is a good chance that the Dow will crack through the first layer of support that comes into play in the 17,800-18,000 and drop all the way down to the 17,000 ranges, creating a splendid buying opportunity.

It has been a long time since this market has shed a decent amount of steam; hence, from a contrarian perspective, a trump win would provide the perfect backdrop for this market to let out an adequate dose of steam. One last thought, if the crowd panics, then the Dow could overshoot to the 16500-16,800 ranges, which would in our opinion creating a “screaming buy type” situation.

Conclusion

From a pure trading perspective, a Trump win would provide contrarian players with an incredibly attractive buying opportunity. Like Brexit, the crowd is bound to overreact as they stampede for the exits, creating opportunity instead of disaster. The experts were dead sure that Brexit was going to create chaos; turns out that the only mess it created was amongst the experts when they were forced to eat their rubbish. Before Brexit, we stuck to our theme that any correction should be viewed as a buying opportunity. Just as Brexit was all bark and no bite; the same phenomenon is likely to play out if Trump wins. All the Naysayers from every crack and crevice will emerge screaming the end of the world and when the world does not end they will be forced to crawl under the rock again. It would be good to keep this saying in mind if Trump wins “dance when the crowd panics and standstill when they jump up with joy”. Regarding who is the better candidate, we will let our readers make that call.

“Bad times have a scientific value. These are occasions a good learner would not miss.”~ Ralph Waldo Emerson

…related from Michael Campbell:

Donald Trump: The Champion of Main Street