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Weekend Reading: The Bull/Bear Struggle Continues

Written by Lance Roberts | Mar, 11, 2016
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The standoff between the “bulls” and “bears” continued this week as prices struggled to rise. The “bulls” continue to “hope” that the recent turmoil that started at the beginning of this year has come to an end. The “bears” continue to point out silly things like an ongoing earnings recession, weakening economic data, and deteriorating technicals to make their case.

Silly “bears”.

Interestingly, on Thursday, the ECB launched its biggest “bazooka” yet pushing further into negative interest rates, increasing their already failed QE program and crossing every finger and toe for “good luck.”  Via the ECB:

“At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

(1) The interest rate on the main refinancing operations of the Eurosystem will be decreased by 5 basis points to 0.00%, starting from the operation to be settled on 16 March 2016.

(2) The interest rate on the marginal lending facility will be decreased by 5 basis points to 0.25%, with effect from 16 March 2016.

(3) The interest rate on the deposit facility will be decreased by 10 basis points to -0.40%, with effect from 16 March 2016.

(4) The monthly purchases under the asset purchase programme will be expanded to €80 billion starting in April.

(5) Investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases.”

Question:

“What happens during the next global economic recession when these unsecured corporate bonds go bankrupt?” 

If you remember, Lehman bonds were IG unsecured corporate bonds the DAY BEFORE they went into bankruptcy. That event sparked the global financial crisis. But this time will be different, right?

I’m only asking the question.

Anyway, I digress. This week’s reading list takes a look at various views on the market, the latest jobs report, oil prices and other interesting reads.


1) Do Any Of The Recent Rallies Pass The Sniff Test by Charles Hugh Smith via OfTwoMinds

“As Chris Martenson and many others have noted, “price discovery” is a joke now, as markets are either propped up by central bank “we got your back” guarantees or outright asset purchases, or driven up and down by speculative hot money flows.

This is not capitalism, or a functioning market: this is the end-game of legalized looting and financialization. What’s the value of real estate? If interest rates are pushed negative, then that gooses housing demand, as the cost of interest on a mortgage declines to near-zero in real terms.”

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2)  The Markets Are Stretched, So I’m “All-In” Short by Doug Kass via Real Clear Markets

“My recent column Not So Super Tuesday highlights why I believe markets are tipping over to short-term bearish, while my Top 10 Reasons to Sell Stocks Now piece incorporates most of my intermediate-term concerns.

That’s why I moved to “all-in short” on Friday during the market’s post-jobs-report ramp-up. I believe stocks’ recent rally from their mid-February low has stretched valuations and drastically altered the risk-vs.-reward ratio.

I‘d also note that Friday’s seemingly good February U.S. jobs report wasn’t quite as “clean” as the strong headline number of 242,000 non-farm job gains suggests. For instance, average wages dropped by 0.1%, while average hours worked fell by 0.2 — a decline usually seen in recessions. (Previous similar drops occurred in February 2010 and December 2013.)”


3) The Wall Street Profits Illusioin by Sam Ro via Yahoo Finance

“Wall Street gurus like Societe Generale’s Andrew Lapthorne, have been tracking the discrepancy between GAAP and non-GAAP reported profits for years.

But last fall, more experts like Deutsche Bank’s David Bianco grew increasingly concerned with what was becoming a growing divide between GAAP and non-GAAP profits.

‘Blended [non-GAAP] 4Q earnings per share is $29.49 with GAAP EPS of $19.92,’ Bianco said of S&P 500 profits on Monday. He further noted that this 67% ratio of GAAP to non-GAAP EPS is ‘well below the normal ~90% ex. recessions.'”

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4) February Jobs Report A Little Misleading by John Crudele via New York Post

Labor trumpeted that 242,000 new jobs were created in February, although wages declined 0.1 percent, the average workweek dropped by 0.2 hours and aggregate hours worked fell 0.4 percent. And part-time work soared in February while full-time job growth was mediocre.

Even the 242,000 job growth looked hokey. Retailing, for instance, saw an unbelievable (as in “not to be believed”) jump of 55,000 jobs despite the fact that February isn’t exactly the month when stores hire people to handle a swarm of shoppers.

As I said last Thursday and in a special Saturday column, the February job report was helped by rogue statistics — untrustworthy seasonal adjustments (especially in retailing) and giddy assumptions made by Labor that will probably have to be corrected later.


5) Oil Prices Should Fall, Possibly Hard by Art Berman via Forbes

Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.

Prices should fall to around $30 once the empty nature of an OPEC-plus-Russia production freeze is understood. A return to the grim reality of over-supply and the weakness of the world economy could push prices well into the $20s.

OIl-Supply-Demand-030916


OTHER GOOD READS


“When the paddy wagon rolls up, they take the good girls with the bad” – Old Wall Street Bear Market Axiom

Questions, comments, suggestions – please email me.

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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

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