Tag Archives: BOJ

Weekend Reading: The Bull Is Back?


That didn’t take much. After a three-day rally, the media is back into “bullish” mode suggesting the bottom is likely in and by the end of this year, it’s all going to be just fine.

Unfortunately, history suggests that after such a long unabated expansion risks are substantially higher than it has been previously. Furthermore, as I have repeated often in these missives, in an economy that is driven primarily based on consumption, and such consumption is already weak, it doesn’t take much to “flip the switch.” 

Believe it or not, this was a point make by former bull Joseph LaVorgna, Chief Economist for Deutsche Bank, now turned…da..da..dum…“bear.”  (Lord help us, hell hath frozen over.)

This week’s reading list in a continuation of thoughts on the current state of the financial markets, economy and the Fed. Is the recent correction now over setting the stage for the bull to begin its next charge? Or, is the recent rally just a trap drawing unwitting investors into the next sell off? No one knows for sure, but what you decide next could have potentially serious ramifications.

1) Bearish Sentiment A Cocktail For Rallies by Doug Kass via Real Clear Markets

“As I noted both four weeks ago and again late last week, numerous precedents and positive technical divergences have led to our current sharp rally, including the fact that:

Despite the S&P 500 and Dow Jones Industrial Average recently hitting fresh lows, only about 50% as many New York Stock Exchange-listed companies hit new 52-week lows this month as did so in January.

The percentage of stocks trading above their 50- and 200-day moving averages was higher at the recent low than it was at the market’s January low.

The McClellan Oscillator and Summation Index recently held at higher oversold levels.

Conversely, the market’s recent leaders have gone on the defensive and become laggards. But as I’ve previously pointed out, leadership changes often accompany a weak overall market — so we have to stay alert.”

But Also Read: The Curious Case Of Surging Transports by Mark Hulbert via MarketWatch

But Read: Bert Dohmen Is Uber-Bearish by Financial Sense

2)  Odds Of A Recession At 33% By Next Year by Larry Summers via The Washington Post

“I would put the odds of a U.S. recession at about 1/3 over the next year and at over ½ over the next 2 years.   There is a substantial chance that widening credit spreads, a strengthening dollar as Europe and Japan plunge more deeply into the world of negative rates, and lower inflation expectations will be tightening financial conditions even as recession looms.  And while there is certainly scope for quantitative easing, for forward guidance and possibly for negative rates, it is very unlikely that the Federal Reserve can take steps that are nearly the functional equivalent of 400 basis point cut in Fed funds that is normally necessary to respond to an incipient recession.”

But Also Read: The 4-Horseman Of The Economy Are Here by Constantin Gurdgiev via True Economics

3) Kyle Bass: A Ticking Bomb In China by Julia La Roche via Business Insider

“China’s banking system has grown from under $3 trillion to over $34.5 trillion in assets over the last 10 years alone. No credit system in history has ever attempted this rate of growth. There is no precedent.

What does this mean for Chinese banks? There is a bad answer and a worse answer. The bad answer is that Chinese bank capital – the equity buffer – is significantly overstated. A TBR requires much less capital to be set aside (only 2.5c as opposed to 11c for an on-balance sheet loan) at the time of origination (anyone thinking Fannie and Freddie?). Adjusting reported bank capital ratios for this effect changes reasonable 8-9% Core Tier 1 capital ratios (CT1) to undercapitalized 5-6% levels.

Now, the worse news. TBRs are one of the biggest ticking time bombs in the Chinese banking system because they have been used to hide loan losses.


Also Read: The China Delusion by Rob Johnson via Project Syndicate

4) Central Banks & The Ongoing Dispute


5) It’s August 2008 All Over Again by Ken Goldberg via The Street

“The stock market’s path for the next month or two is likely to take its toll on both bulls and bears. This is because of how the market tends to “frack” its way through major peaks and troughs, as some indices peak earlier than others, while others tend to trough earlier than others. If you know which index is leading the others, the solution is simple. Once the leader shows its hand, take the appropriate action in the followers and wait for them to catch up, as the profits should be close behind, right? Maybe. Unless humans are involved. We tend to use coping mechanisms that limit our ability to see what the markets are showing us. That historically results in situations where the herd becomes bullish at major tops and bearish at major bottoms.”


But Also Read: An Unambiguous Buy Signal by Jeff Cox via CNBC

And Read: Bear Market Rallies by Urban Camel via Financial Sense


“Investors are condemned by almost mathematical law to lose” – Ben Graham

Questions, comments, suggestions – please email me.


Lance Roberts

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In

Weekend Reading: Bull Struggles & NIRP


Wow…things are certainly happening faster than I expected. As January kicked off the new year, I posted my outlook for 2016 in which I discussed why, despite views of Goldman Sachs and many others, interest rates were going lower rather than higher.

With the Federal Reserve raising interest rates on the short-end (Fed Funds), it will likely push the long-end of the curve lower as the economy begins to slow from the effects of monetary policy tightening.

From a purely technical perspective, rates have been in a long-term process of a tightening wedge. A breakout to the upside would suggest 10-year treasury rates would soar to 3.6% or higher, the consequence of which would be an almost immediate push of an economy growing at 2% into recession. The most likely path, given the current economic and monetary policy backdrop, will be a decline in rates toward the previous lows of 1.6-1.8%. (Inflation will also remain well below the Fed’s 2% target rate for the same reasons.)”


“Of course, falling rates means the ongoing “bond bull market” will remain intact for another year. In fact, if my outlook is correct, bonds will likely be one of the best performing asset classes in the next year.”

Here is that same chart today:


With interest rates now at my target levels in February, and bonds now extremely overbought, this is an opportune time to take some profits out of interest rate sensitive investments.

However, what the plunge in rates also suggests is that the economy is FAR weaker than Ms. Yellen, the mainstream financial media or the bullish blogosphere realize. Unfortunately, by the time the economic data is revised to reveal what rates are already telling you, it will be far too late to protect your investment capital.

But that is just my view. This weekend’s reading list, as usual, is a compilation of reads that provide both sides of the market and economic debate. Our job, as investors, is to reduce our confirmation bias in order to make more logical decisions with our money even though our emotions may be trying to lead us elsewhere. Hope, optimism and greed are all emotions that have led to far greater destructions of capital than negativity and fear ever have. 

1) The Greatest Bull Market Of All Time by Ben Carlson via Wealth Of Common Sense

“How many hedge fund managers would kill for the following performance characteristics over a 40-year time frame?

  • Annual Returns: 7.7%
  • Volatility: 6.9%
  • Number of Up Years: 37
  • Number of Down Years: 3
  • Annual Win %: 93%
  • Worst Annual Loss: -2.9%
  • Average Annual Loss: -1.9%
  • Max Drawdown: -12.4%”


But Also Read: Equity Bubble Update by Jeremy Grantham via GMO

2) I Was Too Bullish by Matthew Belvedere via CNBC

“I was far too bullish last December,” Siegel admitted, referring to his call on “Squawk Box” that “valuations can stay on the high side.” He also had predicted on CNBC in November that Dow 20,000 was a “real possibility” in 2016. It was above 15,900 on Monday.

The Wharton School finance professor on Monday summed up his view on the headwinds to the market. “Those deflationary forces … from China, from commodities are really, in the presence of debt that so many of these energy and other companies have, … causing the market turmoil right now.”

Also Read: Just A Bullish Pause by Avi Gilburt via MarketWatch

Opposing View: Deteriorating Liquidity by Luke Kawa via Bloomberg

And Also: America’s Earning Recession Deepens by Alex Rosenberg via CNBC

3) Global Growth Fraying At The Edges by Gavyn Davies via FT

“The weakness in global risk assets that started in May 2015 raises a major question for macro-economists. Is market turbulence foreshadowing – or perhaps causing – a much broader weakening in global economic activity than anything seen since 2009?

Until now, the Fulcrum activity nowcasts have failed to identify a major turning point in global growth. This conclusion is still just about intact, but is subject to much greater doubt in this month’s report. There are some signs that growth in the advanced economies may be fraying at the edges, and China may be embarking on another mini downturn.”


Also Read: Clueless Economists & The Coming Recession by Aaron Layman


5) Why Stocks Could Fall By 10-20% by Jack Bouroudjian via CNBC

“The market tone began to shift in December — and the warning signals started to flash red.

We started to witness a contraction in earnings for a couple of quarters in a row, which resulted in the price-to-earnings ratio of the S&P 500getting rich. We watched crude oil have a parabolic move to the downside as producers couldn’t pump fast enough. And we started to see the Federal Reserve move rates at a time when all the other central banks were doing the exact opposite which created risk aversion.

As it turns out, this became an I.O.U. market: interest rates, oil and uncertainty.”

But Also Read: 16 Charts The Explain The Market by Sam Ro via Business Insider


“A good player knows when to pick up his marbles.” – Anonymous

Questions, comments, suggestions – please email me.


Lance Roberts

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In

Weekend Reading: The Awakening


Over the last two months, the deterioration in the economic data has become much more prevalent despite the ongoing hopes of the more “bullishly biased” mainstream media.

Furthermore, as I predicted early last year, the Federal Reserve likely made a mistake in hiking interest rates when the economic and inflationary backdrop were exceedingly weak. To wit:

The real concern for investors and individuals is the actual economy. There is clearly something amiss within the economic landscape, and the ongoing decline of inflationary pressures longer term is likely telling us just that. The big question for the Fed is how to get out of the potential trap they have gotten themselves into without cratering the economy, and the financial markets, in the process.

It is my expectation, unless these deflationary trends reverse course in very short order, that if the Fed raises rates it will invoke a fairly negative response from both the markets and economy.

And so…that has come to pass. Of course, for me, since I am deemed a “bear” for being a “realist”, my writings are more like a “tree falling in the woods.”  The only problem is that just because no one hears it, doesn’t mean the damage to individuals isn’t just as real.

This weekend’s reading list is a compilation of articles discussing “The Awakening” by many to the real problems currently plaguing the economy, the markets, and the Fed.

While it is said “it is better to be late than never,” such sentiment doesn’t sit well with individuals when they are told after the fact what they should have known before hand. But then again, since the turn of the century, “getting back to even” has apparently become a new investing strategy.

1) It’s Time To Worry About The Economy by Matt Phillips via Quartz

“And now the brightness in the US appears to be dimming, at least a bit. The latest benchmark update on the US manufacturing sector shows activity continued to decline in January, marking four straight months of contraction. The strong US dollar—it’s up about 13% against the currencies of major trading partners—is a key culprit.”


But Also Read:  Citi’s Crash Clock Is 5-Minutes To Midnight by Jim Edwards via Business Insider

But Then There Is: BofA Says Markets Poised For 24% Gain by Jeff Cox via CNBC

2) Why The Fed Must Go Negative by Ron Insana via CNBC

“But even the simple act of doing nothing, as other central banks ease further, would strain foreign exchange values, accelerate capital outflows from countries whose currencies are plunging against the dollar, and rapidly increase the debt servicing costs of those countries – like Russia, China and other emerging markets, which have heavy dollar-denominated debt loads.

In other words, if global monetary policies continue to diverge dramatically, there will likely be unintended consequences that lead to a rupture in world markets, strained by wildly fluctuating currency values, a further crash in commodity prices and a rush of capital out of the world’s weakest economies.”

Also Read: Trucks & Trains Barely Rolling by Buttonwood via The Economist

Opposing View: Taking Oil Is Just Noise by James Surowiecki via The New Yorker

And Also: The US Is Not In Recession by Econobrowser

3) Blaming The Fed by Ed Yardeni via Yardeni Research

“How did we get into this mess? Despite all the easy money provided by the Fed and the other major central banks, global economic growth is subpar. Indeed, it may be heading into a recession. Inflation remains below the 2% target of the major central banks. Commodity prices are crashing, and stock prices have been weak since the start of the year. Consider the following:

High price of easy money. Today’s problems may be traced to the termination of the Fed’s QE program on October 29, 2014 and the subsequent anticipation of a mere 25bps hike in the federal funds rate, which finally happened on December 16, 2015.

The Fed’s easy monetary policies at the beginning of the previous decade certainly contributed to the subprime mortgage mess. This time, the Fed’s easy money in recent years encouraged borrowers in emerging markets (EMs) to borrow lots of money from banks and in the bond markets to expand commodity production. A significant amount of that debt was in dollars. The prospect of the tightening of US monetary policy after so many years of near-zero interest rates caused EM borrowers to scramble to sell their own local currencies to buy dollars to pay off their dollar-denominated debts.”


Also Read: Welcome To The Profits Recession by Chris Brightman via Research Affiliates

4) Recession Risks Warn Of Severe Market Drop by Tomi Kilgore via MarketWatch

“Based on current valuations, the prices of most stocks don’t appear to have factored in a recession scenario, “hence the downside should we see a recession could be rather severe,” RBC Capital Markets’ global equity team wrote in a research note to clients.

Applying a stress test to their coverage universe, using worst-case, price-to-earnings valuations seen during the 2008-to-2009 recession, RBC analysts said they believe the shares of most companies could still fall another 50% or more from current levels.”


Also Read: Will Stocks Remain Diverged From Global Weakness by Michael Gayed via MarketWatch

Further Read: What The Next Recession May Look Like by Matthew Klein via FT AlphaVille

5) Bounce In Stocks May Be A “Siren’s Song” by Joe Calhoun via Alhambra Partners

“With no improvement in the economic outlook yet – the yield curve is still flattening, credit spreads still moving wider – the move in stocks last week may last a bit longer but I wouldn’t get too excited about it unless you still have some stock to unload. We are still in the transition period I wrote about two years ago – see here – the strong dollar positives not yet apparent. Intermediate and long term momentum is still negative; only short term indicators are turning higher and those only feebly. More monetary stimulus, wherever it is in the world, isn’t the answer for a global economy still trying to find a new growth path. Pay attention to bonds and ignore the sirens of the stock market.”

But Also Read: If It’s A Recession, Stocks Will Fall by George Perry via Real Clear Markets

And: Bonds Suggests Further Correction by Eric Bush via GaveKal Research


“Should you find yourself in a leaky boat, devote your efforts to changing vessels rather than patching leaks.” – Warren Buffett

Questions, comments, suggestions – please email me.


Lance Roberts

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In

Weekend Reading: Mental Floss



Over the last couple of week’s most of the weekend reading list has been attributed to the market’s stumble since the beginning of this year. Importantly, as we rapidly head into January’s close, there seems to be little to reverse the negative tide sweeping through the market.

As I wrote earlier this week, this isn’t a good thing.

“It would seem logical that a weak performance in January would lead to some recovery in February. Markets are oversold, sentiment is bearish and February is still within the seasonally strong 6-months of the year. Makes sense.

Unfortunately, the historical data suggests that this will likely not be the case. The chart below is the historical point gain/loss for January and February back to 1957. Since 1957, there have been 20 January months that have posted negative returns or 33% of the time.”


“February has followed those 20 losing January months by posting gains 5-times and declining 14-times. In other words, with January likely to close out the month in negative territory, there is a 70% chance that February will decline also.

The high degree of risk of further declines in February would likely result in a confirmation of the bear market. This is not a market to be trifled with. Caution is advised.”

In other words, there is a real probability that if the markets don’t get a lift between now and the end of the month, February could be the beginning of a technical bear market decline.

But were could that lift come from? The first is month-end window dressing by fund managers after a brutal start to the new year. After much liquidation, fund managers will need to rebalance holdings.

The second is the potential for Central Banks to intervene which could embolden the bulls as further support could temporarily delay the onset of a bear market and recession. Note: I said temporarily. Pulling forward future consumption is not a long-term solution to organic economic growth. 

Not to be disappointed, the BOJ announced a move into NEGATIVE interest rate territory to try and boost economic growth in Japan. (Interestingly, however, was the lack of increase in QE.) The announcement was a shock to the markets as the BOJ had just stated last week that negative interest rates were not being considered. Here are some early takes on the BOJ’s move:

  • World shares heat up as Bank of Japan goes sub-zero (Reuters)
  • Stocks Rally With Bonds as BOJ Ends Grim January on High Note (BBG)
  • Japan Follows Europe Into Negative Interest Rate Territory (WSJ)
  • BOJ Move Resulting In Currency Wars & Global Slowdown (ZeroHedge)


That move, on top of the latest FOMC meeting, more market turmoil and bond yields flip-flopping around 2%, has made this a most interesting week. Here are some of the things I am reading this weekend.

1) Why Junk Bonds Will Sink Stocks Further by Yves Smith via Naked Capitalism

“Investment lore is full of sayings as to how the bond markets can send false positives about lousy prospects for the real economy and the stock market. However, as Wolf sets forth below, a new Moody’s article makes a compelling case as to why the high risk spreads in the junk bond market bode ill for the stock market.”


But Also Read:  Credit Cycle In Full Collapse Mode by Myrmikan Research

And Read: We Should Be Terrified By Junk Bonds by Rana Foroohar via Time

2) If It’s A Bear Market, It Ain’t Over by Joe Calhoun via Alhambra Partners

“The real enemy of investors is not these fairly routine 10 or 20% downturns. The real enemy is the bear market that is associated with a recession or crisis, the one that knocks your equity block down by 40 or 50%. And actually it isn’t even the depth that is the real enemy. For most investors the enemy is time.”

But Also Read: El-Erian: Day Of Reckoning Coming by Mohamed El-Erian via CNBC

Opposing View: Don’t Do Anything, Just Stand There by Wade Slome via Investing Caffeine

And Also: What Investors Shouldn’t Do In A Bear Market by Peter Hodson via Financial Post

3) 34 Charts: This Time Is Different by Will Ortel via CFA Institute

“In October, I asked whether the market could have its cake and eat it too. The hope was for persistent low interest rates and consistently appreciating securities.

Somebody seems to have remembered cake doesn’t work that way.

According to some, this buying opportunity is brought to you by the letter “C”: China, commodities, and the now questionably healthy consumer. Reaching towards risk feels sensible. It’s been nearly 10 years since it wasn’t.

But today, growth, like certainty, is hard to come by. We hear the word “recession” again. There have been more Google searches for the phrase “sell stocks” this month than at any time since October 2008. And January is not over.

To some strategists, the writing is on the wall. I wrote recently that anyone who says they know exactly what will happen is wrong, cheating, or both. I still think that. So before getting into what I see, I want to tell you what to do: your homework. Now is the time to distinguish yourself as an investor. So as you read through everything below, remember: I’ll be disappointed if you wind up agreeing with everything I say.”


Also Read: Why Dip Buyers Will Get Clobbered by David Stockman via Contra Corner

Watch: Recession Fears Grow Louder by Heather Long via CNN Money

4) The Time To Sell Has Passed by Doug Kass via Yahoo Finance

“The time to sell has likely passed. Those opportunities had been in place since last spring and were the outgrowth of a deteriorating fundamental and technical backdrop that many investors ignored.

But while I have a more-constructive market view for the short term my confidence level isn’t high. In a fragile-growth setting, too much can upset the apple cart.”

Also Read: Sellers Are Still In Control by Michael Kahn via Barron’s

Further Read: It Wasn’t Oil, China Or The Fed by James Juliand via RTW

5) Feldstein: Let Markets Fall, Fed Should Hike Rates by Greg Robb via Market Watch

“In an interview with MarketWatch, Feldstein said stocks are overvalued. Any signal from the U.S. central bank that it may pause from its plans to continue raising interest rates would only create the impression that there is a “Fed put” on the market. A put is an option that protects an investor from losses.”

But Also Read: The Fed Doesn’t Understand Liquidity by Louis Woodhill via Real Clear Markets

And: Did The Fed Make A Huge Mistake? by Matt O’Brien via WaPo


“I can calculate the motion of heavenly bodies, but not the madness of people” – Sir Issac Newton

Questions, comments, suggestions – please email me.


Lance Roberts

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In