Street Smart Report - Feed Asset Management Research Corp. en weekly 1 Fri, 12 Oct 2012 17:00:01 -0400 Consumers and Investors Confident Even As Global Recession Threatens Fri, 12 Oct 2012 17:00:01 -0400 Sy Harding

Consumers and Investors Confident Even As Global Recession Threatens Anew !

October 12, 2012.

It’s been a most unusual - some say crazy - year for global stock markets, certainly including that of the U.S.

The global economic recovery from the 2007-2009 financial collapse stalled last year and continues to worsen this year, with the International Monetary Fund cutting its forecasts for global economic recovery yet again, including for the U.S., and warning four days ago that risks of the world dropping back into a global recession “are alarmingly high”, and that “no significant improvements appear in the offing.”

That certainly sounds like the IMF doesn’t have much confidence that the ‘Troika’ (the IMF, EU, and ECB) will be successful with the euro-zone rescue plans and stimulus measures announced a month ago.

Meanwhile the stock markets of China and Japan, the world’s second and third largest economies, are in serious bear markets due to their economic slowdowns and fears of the worsening global economic conditions. China’s stock market is down 40% from its peak in 2009. Japan’s market is down 22% from its 2010 peak and still 51% beneath its peak in 2007.

Clearly neither of those extremely important global economies have any more confidence than the IMF that improvements are in the offing.

U.S. corporations seem to be preparing for the possibility of unusually difficult times ahead. They have salted away a record $1.4 trillion in cash, refusing to invest it in their futures, earning near zero on it, the purpose for hoarding the cash rather than using it apparently being to make sure they can pay their bills and survive anything that might lie ahead.

The fear of corporate managements could also be seen in the way that corporate insiders did not agree with the optimism that created the big stock market rally off the June low. They sold into its strength at an unusually heavy pace. According to the latest Vickers Weekly Insider Report, their selling has continued even after the Fed announced its QE3 stimulus measures. Like the IMF, and China and Japan’s markets, they apparently have little confidence that the new rescue efforts by the ECB in Europe and the U.S. Fed, will produce economic improvement anytime soon.

Usually savvy hedge-fund managers likewise did not participate in the June rally, instead selling into it. According to the Wall Street Journal, that has them experiencing their worst year since 1997. The opinion of hedge fund Comstock Partners, revealed in a report this week, is that the economy and stock market face “severe headwinds in the period ahead”. It cites “the ongoing European sovereign debt crisis, significant slowing of growth in China and emerging markets, ongoing problems in Japan, an anemic U.S. recovery, dysfunction in Washington, the coming fiscal cliff, and the first decline in S&P 500 earnings in three years.” Its conclusion is that “while these problems are fairly well-known, they have not been factored into the market since investors have been focusing on other factors they regard as highly bullish.” They cite those factors as mainly being investor confidence that the Fed has their backs and “will prevent anything terrible from happening.”

Private-equity funds are having a similar under-performing year, up on average of only 4%. As the Journal says, that is not what their investors planned on. The funds were also suspicious of the rally, and are sitting on close to $1trillion in cash.

However, U.S. investors remain bullish and confident as evidenced by the resilience in the U.S. stock market. For instance, while China’s stock market is in a bear market and at a 4-year low, the S&P 500 reached a four-year high in mid-September, and has settled back less than 3% since.

That’s quite a contrast to the worsening worries of the IMF, China and Japan, U.S. corporations, company insiders, professional hedge fund and other institutional managers.

But it’s not just U.S. investors that are confident and bullish, but U.S. consumers as well.

The University of Michigan – Thomson Reuters Consumer Sentiment Index was released Friday. It shows that consumer confidence has jumped to 83.1 in October from 78.3 in September. That’s much better than forecasts that it would decline to 78.0.

And at 83.1, consumer confidence is getting close to the 87 level it averaged in the year prior to the 2008-2009 recession. That’s a lot more recovery than global economies have achieved, including that of the U.S.

Is it just due to the pixie dust being puffed out by Wall Street and the Fed, about to be blown away by the gathering storm others see coming.

Or has Main Street got it right this time, while the so-called ‘smart money’ is refusing to inhale the magic?

Sy Harding is president of Asset Management Research Corp, and editor of, and the free market blog, He can also be followed on Twitter @streetsmartpost

Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends.

Market Seasonality Revisited Fri, 05 Oct 2012 17:00:01 -0400 Sy Harding

New Academic Study Says Seasonality Triples Market Returns Over Long-Term!

October 5, 2012.

Twice a year, in April and October, I remind you of the market’s remarkable seasonality, the popular version of which is known as ‘Sell in May and Go Away’. It calls for getting out of the market on May 1st each year and back in on November 1st.

As with most investment strategies, most investors have only short-term thoughts regarding it. If it worked out the previous year or two, “Well just maybe I’ll consider it for next year.” And if it didn’t work out the previous year then clearly it’s either just a silly theory, or a strategy that may have worked in the past but the pattern has obviously come to an end.

And like all strategies, especially buy and hold, it doesn’t work in every individual year. But it doesn’t have to in order to produce remarkable outperformance over the long term. That’s because in years when the market makes more gains in the unfavorable season when a seasonal investor is out, the seasonal investor doesn’t have a loss, but merely misses out on additional gains. But when the market does have a correction in the unfavorable season, its losses can be well into double-digits, which the seasonal investor avoids.

It’s a shame more investors don’t take the time to obtain the facts.

The seasonal effect is so pronounced that investing based solely on those calendar dates succeeds in the difficult task (even for professionals) of outperforming the market. And it does so while taking only 60% of market risk, a very important consideration.

You don’t have to take my word for it. Independent academic studies provide indisputable proof.

For instance, a 27 page academic study published in the American Economic Review in 2002 concluded, “Surprisingly we found this inherited wisdom of Sell in May to be true in 36 of 37 developed and emerging markets. Evidence shows that in the U.K. the seasonal effect has been noticeable since 1694. . . . The risk-adjusted outperformance ranges between 1.5% and 8.9% annually depending on the country being considered. The effect is robust over time, economically significant, and unlikely to be caused by data-mining.”

And a new 54-page study by Ben Jacobsen and Cherry Y. Zhang at Massey University in New Zealand, was just released a few days ago. It’s titled The Halloween Effect: Everywhere And All The Time. It refers to the ‘Sell In May’ pattern as the ‘Halloween Effect’, selling May 1 and re-entering the day after Halloween, October 31.

It confirms and adds to the findings of previous studies. A few quotes from it: “Observations over 319 years show November through April returns are 4.5% higher than summer returns. The effect is increasing in strength. Over the last 50 years the difference between the two periods is 6.2%. It does not disappear after discovery, but continues to exist even though investors may have become aware of it. . . . It is significant in 35 countries . . . stronger in Europe, North America, and Asia than in other areas. . . . The odds of the strategy beating the market are 80% for horizons over 5-years, and 90% for horizons over 10-years, with returns on average of around three times higher than the market.”

I’ve always given credit for the discovery and coining of the phrase ‘Sell in May and Go Away’ to researchers in the 1970’s. But this new study reports “a mention of the market wisdom “Sell in May” in the May 10, 1935 issue of the Financial Times, and the suggestion that at that time it was already an old market saying.”

But the market obviously does not roll over into a correction exactly on May 1 each year, or begin a new favorable season rally on November 1 each year.

So the Street Smart Report seasonal strategy, developed in 1998, incorporates the MACD technical indicator (Moving Average Convergence/Divergence) to more closely identify the seasonal exits and re-entries.

It is a significant improvement over the basic Halloween Indicator. Under its rules an exit signal can come as early as April 16, but will be delayed if MACD remains on a buy signal at the time. In the fall, the re-entry can take place as early as October 20, but will be delayed if MACD is on a sell signal at the time. Of interest as we enter October, its re-entry signals have been as early as October 20, but also as late as November or even early December.

Mark Hulbert, of Hulbert Financial fame, has been tracking various versions of seasonal timing strategies since mid-2002. In an update in a current article on MarketWatch, the Halloween Indicator he reports that the Street Smart Report version of seasonal timing has gained an average of 8.5% annually since mid-2002, compared to the Halloween Indicator’s average annual gain of 6.9%, and the market’s average gain of 5.7%, and while taking only 60% of market risk.

This year, seasonality seemed to be working out right on the button when the Dow topped out on May 2 and by June 4th the S&P 500 was down 9.1%. But the big rally off the June low has the Dow now recovered and 2% above its May 1 peak. So this might be one of those years when seasonality does not work out.

And yet, with at least the Street Smart Report’s seasonal signals out of the unfavorable season sometimes coming as late as late November, there’s still plenty of time for a correction first, before a favorable season rally to new market highs by next spring.

Either way, investors would do themselves a big favor by checking out the facts about seasonality. Click here to read the latest independent academic study http:/

Sy Harding is president of Asset Management Research Corp, and editor of, and the free market blog, He can also be followed on Twitter @streetsmartpost

Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends.

]]>Are Declining Oil Prices Predicting A Stock Market Decline? Fri, 28 Sep 2012 17:00:01 -0400 Sy Harding

Are Declining Oil Prices Predicting a Stock market Decline?

September 28, 2012.

When the economy slowed in the summer of 2010 and the Fed launched QE2, commodity prices took off like a SpaceX rocket. The price of crude oil reversed to the upside along with the stock market, surging up 64%, from $70 a barrel to $114 a barrel eight months later in April, 2011.

When the economy began to slow again in the spring of 2011, the stock market declined again and oil prices fell back to $75 a barrel by October. The Fed then launched ‘operation twist’, again adding liquidity to the financial system, and the price of oil reversed to the upside, along with the stock market, oil reaching $109 a barrel six months later in March of this year.

This year as the economy slowed yet again, oil plunged back to a low of $75 a barrel in June. This time, as hopes grew that the Fed would come to the rescue again, neither oil nor the stock market waited, but began rallying again purely on the hopes for Fed action. The price of crude oil reached $100.40 a barrel two weeks ago.

When the Fed did indeed announce its QE3 program, it was widely expected that commodity prices, including oil prices, would surge higher as they did after QE2 and ‘operation twist’.

Instead, over the last two weeks the CRB Index of Commodity Prices has declined 5.5%, and oil has plunged 11%, from $100.40 a barrel two weeks ago to $89 a barrel this week.

Is it that the Fed’s action was already factored into oil prices this time in the rally on hope from the June low? Or maybe that global economies are in such slides that the Fed action (and that of the European Central Bank) is too little too late to prevent a global recession?

Meanwhile, is the plunge in the price of oil an ominous sign for the stock market? I ask since the price of oil seems to track very closely with the stock market, as well as with economic slowdowns and recoveries.

In any event, this week’s economic reports seem to answer the question of what the Fed saw coming when it decided to provide an aggressive QE3 stimulus effort in spite of signs of improvement in the housing industry.

The week’s reports include that the Chicago Fed’s National Business Index, calculated from 85 individual economic reports, plunged further in August. Its three-month moving average, considered a recession indicator, fell from -0.26 in July to -0.47 in August. That was its 6th straight negative reading. And 2nd quarter GDP growth was unexpectedly revised down to just 1.3% from the previously reported dismal 1.7%. And Durable Goods Orders plunged 13.2% in August. Providing a more recent picture, the Chicago PMI Index fell below the 50 level that marks expansion and contraction in September, coming in at 49.7, its lowest level in three years.

Combined with the ominous decline in oil prices, indicating QE3 may not have the same positive impact as QE2 and operation twist, this week’s additional dismal economic reports are providing a warning to investors that October may be a difficult month this year.

Those inverse etf’s against the market, PSQ, DOG, SH, and RWM are looking attractive again.

Sy Harding is president of Asset Management Research Corp, and editor of, and the free market blog, He can also be followed on Twitter @streetsmartpost

Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends.

]]>If You LIke QE3 But the Stock Market Makes You Nervous - Buy Gold! Fri, 21 Sep 2012 17:00:01 -0400 Sy Harding

If You Like QE3 But the Stock Market Makes You Nervous - Buy Gold!

September 21, 2012.

QE2 in 2010 and ‘Operation Twist’ in 2011 recovered the stock market from double-digit corrections that were underway at the time, and rescued investors from their extreme bearish sentiment each time.

QE3 is underway and many are convinced that’s all that matters, that a repeat of stock market gains is a sure thing.

You need to realize that conditions are much different this time.

For instance, rather than being down double-digits this time with fears high that it is heading down further into a bear market, the stock market was already near four-year highs, and investor sentiment was at high levels of bullishness and confidence when the surprise of QE3 was announced last week.

Perhaps more significant, in 2010 and 2011 corporate earnings were growing impressively. Profit margins were benefiting from the improved productivity brought about by large employee lay-offs, plant closings, and tax loss carry-forwards from the recession, while corporations with global operations benefited even more from their ties to Brazil, China, India, etc., where economies remained strong and the main concerns were rising inflation.

But this time, those normal driving forces for stocks are completely reversed. The economies of important U.S. trading partners like China, India, Japan, Brazil, and the entire 17-nation euro-zone, have slowed dramatically this year, the euro-zone already in a recession.

And corporate earnings are nose-diving. In the U.S. S&P 500 earnings grew at a huge 45% pace in 2010 as they recovered from the losses suffered in the Great Recession. That unsustainable pace slowed to a still robust 15% earnings growth in 2011.

But this year earnings grew only 0.8% in the 2nd quarter, and the consensus forecast is for negative growth in the current quarter, a decline in earnings growth for the first time since the recession ended. Adding to the deteriorating situation, corporations are warning of even slower sales and earnings going forward, citing slowdowns globally that are beyond the ability of the U.S. Fed to fix.

Global bellwethers Intel, FedEx, and UPS, joined the warnings parade in recent days.

Warnings from major transportation companies, like FedEx (FDX), UPS (UPS), and Norfolk Southern Railroad (NSC), are particularly worrisome, since the DJ Transportation Avg has been in a negative divergence with the rest of the market all year, even before these warnings. In spite of the stock market rally since the June low that has the S&P 500 now up 16% for the year, the Transportation Avg has been hitting lower highs on its attempts to rally and is down 8% from its January high. The Transports often lead the economy and the rest of the market since they see early warnings when shipments of raw materials to manufacturers, and of finished goods to end users, decline sharply.

I seriously doubt that the laws of business cycles have gone away, and I still believe that fundamentals matter.

So with previous global economic strength crumbling, a sharp downside reversal in corporate earnings underway all year, the negative divergence of the bellwether Transports, and the stock market already excitedly rallied to four-year highs, there are reasons to question further bullish expectations for the stock market from QE3 this time.

However, since the Fed’s goal for QE3 is also to devalue the dollar again (in an effort to boost U.S. exports, and to create inflation) if it is to at least succeed with those goals QE3 should light a fire under gold. And it has been doing that.

We are on a buy signal on gold, and holding a 20% position in the SPDR Gold Trust etf, symbol GLD. But while gold has already rallied 15% from its June low, equaling the rally in the S&P 500, at least gold is rallying from an oversold condition after declining 18.5% from its 2011 record high to its June low. And its rally does not yet have it back to its high of last year, let alone to four-year highs like the S&P 500.

So if you expect continuing positive reactions in markets to QE3, gold might be a wiser choice than the stock market.

The world’s largest gold bullion etf is the SPDR Gold Trust, symbol GLD. Canadian investors can choose from six gold bullion etf’s that trade in Canadian dollars on the Toronto Stock Exchange. The largest and most active is the iShares Canada Gold Bullion Fund, symbol CGL-T.

Sy Harding is president of Asset Management Research Corp, and editor of, and the free market blog, He can also be followed on Twitter @streetsmartpost

Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends.

]]>Enough With The Fed's Transparency Already! Fri, 14 Sep 2012 17:00:01 -0400 Sy Harding

Enough With The Fed's Transparency Already!

September 14, 2012.

When Ben Bernanke became chairman of the Federal Reserve in 2006 he promised a significant change. The Fed would be much more ‘transparent’ in letting markets and the public know more about its inner workings, its concerns, its internal debates, its potential decisions. He has certainly kept his promise.

But sometimes I yearn for the days of former Fed chairmen Paul Volcker and Alan Greenspan, who revealed nothing of what the Fed was thinking. Greenspan was particularly adept at befuddling even Congressional committees with his famous “fed-speak” language that left committee members and analysts asking afterwards, “Wha’d he say?”

That approach of providing no transparency helped get the economy through a lot of problems during their combined decades in office. We only found out long afterward how worried the Fed had been at various times, knowledge that no doubt would have resulted in several panics had the Fed been transparent with its concerns at the time.

How well has it worked out having the Fed providing more transparency since 2006?

In February, 2008 in the early stage of the 2008-2009 recession, we saw Fed Chairman Bernanke and then Treasury Secretary Paulson in televised Congressional hearings on the economy and financial markets. You would think all participants would want to boost the chances of their new rescue efforts working, by providing the public with as much positive bias as possible.

But no, in the interest of full transparency, we had Bernanke warning about how the Fed expected still more negative pressure ahead from the housing collapse, worsening labor markets, a credit crunch that may have still more shoes to drop, and revealing that the Fed was also beginning to worry about the potential for rising inflation.

That was really brilliant. Spend big bucks on stimulus plans aimed at boosting public confidence that more serious problems could be averted, and then completely undermine the effort with transparency that revealed still more worries in the Fed’s thinking.

Since then the transparency has increased. The Fed’s statements after its FOMC meetings have become more revealing, the actual minutes of the meetings are now released within a few weeks, and this year Chairman Bernanke has begun holding a press conference following the meetings to provide any lingering information or questions not provided in the FOMC statement.

The result has been that over the last three years markets have been forced to focus not so much on the normal driving forces of markets, the economy and earnings, but on what the Fed is worried about, what its members are thinking, what tools it is discussing that it could bring into play if needed, and what might trigger potential market-moving action.

And Chairman Bernanke admitted in his press conference yesterday that the Fed is targeting the stock market as a large part of its effort to improve the employment picture. He seemed to agree that QE1 and QE2 did not result in the additional liquidity going directly into jobs and the economy, and QE3 may not either, but that it will hopefully lower long-term interest rates, including mortgage rates, and possibly increase asset prices. And he said, “To the extent that the prices of homes begin to rise, consumers will feel wealthier, they’ll begin to feel more disposed to spend. So house prices are one vehicle. . . . And stock prices – many people own stocks directly or indirectly. The issue is whether improving asset prices will make people more willing to spend.”

If using interest rate cuts, and then QE1, QE2, and ‘operation twist’ to bring 30-year mortgage rates down to generational lows of 3.6% has not jump-started the housing market to any great extent, would 3.2% make any meaningful difference? Mortgage rates do not seem to be the problem for would-be home buyers. Tightened lending practices, lack of jobs, and uncertainty about the future are the problems.

Will the dramatic action have its apparent other desired result, another leg up for the stock market. Or will it result in a sell-off, given that expectation of the Fed action has pretty much been factored in since the market’s June low?

For investors, it was bad enough that the action alone indicated the Fed believes the economy and threat of a global recession have become so alarming that it could wait no longer and had to fire off such a huge barrage of measures all at once, virtually emptying its arsenal of meaningful weapons.

So the further uncertainties Chairman Bernanke felt compelled to provide in his press conference were not needed, and may have done more harm than good to the Fed’s intentions.

Bernanke certainly did not take European Central Bank President Draghi’s positive and encouraging approach. In promising ECB action Draghi said “The ECB will do whatever it takes to save the euro - and believe me it will be enough.”

press conference, while saying the Fed’s target is unemployment, Chairman Bernanke kept repeating that the Fed’s monetary action “is not a panacea”, that it will not solve the unemployment or slowing economy problems, that it can only “provide some support”, that further help would have to come from the fiscal side (Congress). He also said several times in response to questions that “The Fed does not have tools that are strong enough to solve the unemployment problem.”

The Fed’s action would have a better chance of producing the sustained positive market reaction the Fed apparently is after, if the Fed had simply taken the action and shut-up. Chairman Bernanke’s penchant for ‘transparency’ has caused more uncertainties than clarity over the years since adopted.

And it did so again this time to a degree that a positive market reaction is far from assured.

Meanwhile, I’m still liking our buy signal on gold and 20% holding in GLD, and sell signal on U.S. Treasury bonds, and 20% holding in the ProShares Short 20-year bond etf, symbol TBF.

Sy Harding is president of Asset Management Research Corp, and editor of, and the free market blog, He can also be followed on Twitter @streetsmartpost

Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends.

]]>Are Rescue Efforts Too Late to Avoid Global Recession Fri, 07 Sep 2012 17:00:01 -0400 Sy Harding

Are Rescue Efforts Too Late To Avoid Global Recession?

September 7, 2012.

Economic growth continues to slow at an accelerated pace globally, not just in Greece and Spain, and other euro-zone countries in the headlines, but in the world’s ten largest economies of the U.S., China, Japan, Germany, France, the United Kingdom, Brazil, Italy, India, and Canada. The 17-nation eurozone as a whole is already in a recession. Many other nations are just barely keeping their heads above water.

A number of global stock markets saw the problems coming and are already in bear markets. The market of China, the world’s second largest economy, is down 32% over the last 24 months on concern that its economy is coming in for a hard landing. Japan’s market, the world’s third largest economy, has lost 19% of its value over the last 18 months, and in spite of the June rally is down 14% just since May. Brazil’s stock market is down 20% over the last 18 months as its previously booming economy slows significantly.

In the U.S., even though its stock market is at multi-year highs that might have one think its economy must be booming, the economy is just scraping along and slowing further, with GDP growing at just a 1.7% pace in the 2nd quarter, and corporations warning of still slower conditions ahead.

The problem, another stall in the recovery from the Great Recession of 2008, has been obvious all year. But those who could at least try to come to the rescue have been reluctant to do so again, perhaps because their previous rescue attempts were not lasting and they’re running out of ammunition.

Panicked by the market correction of April to June, in which even Europe’s strongest economy, Germany, saw its market plunge 16%, European Central Bank President Draghi issued his now famous promise that “The ECB will do whatever it takes to save the euro”.

Markets waited for six weeks, but the ECB finally revealed yesterday what those efforts will be - unlimited buying of the bonds of troubled euro-zone governments that request bail-outs.

It’s the ECB’s third bond-buying program in recent years. This one is more aggressive than the previous two and is given better odds of working to solve the euro-zone’s debt crisis.

But I was surprised the ECB’s “whatever it takes to save the euro” effort did not include cutting interest rates to also stimulate the eurozone economy.

Meanwhile, concerns are already rising that its announced program of unlimited bond-buying may even worsen the euro-zone’s recession, since the program requires governments that request the debt bailout to adopt and adhere to strict austerity measures in order to qualify for the bond-buying, including reducing government spending, and cutting wages, pensions, and services even further.

Meanwhile, in China, the hoped for aggressive economic rescue has not been forthcoming, with analysts expecting any major stimulus to be put off until after the new Chinese leadership takes over later in the year and gets a chance to act, probably not until early next year.

In the U.S., the Federal Reserve has already cut interest rates close to zero, and provided several rounds of aggressive bond-buying in the form of QE1, QE2, and last year’s ‘operation twist’. It has seemed reluctant to act again, saying only that it’s monitoring the situation and will take action if needed, while successfully fueling a stock market rally on that assurance.

As revealed in the minutes of its last FOMC meeting and Fed Chairman Bernanke’s recent speech from Jackson Hole, the Federal Reserve’s biggest worry is employment.

Over the last few weeks it looked like the Fed might get by with putting off action again. The employment picture seemed to improve dramatically since its last FOMC meeting. It was subsequently reported that 163,000 new jobs were created in July, much better than expectations, and this week’s ADP jobs report showing 201,000 new jobs created in August indicated the improving trend continued.

So the Fed may have been shocked when the Labor Department’s report on Friday showed only 96,000 new jobs were created in August, and the previous report of 163,000 new jobs in July was revised down to 141,000.

So now the pressure is back on the Fed to act at its meeting next week.

But does all the previous reluctance of central bankers to act have them so far behind the curve of a potential global recession that by the time the actions are announced, implemented and begin to have an effect, it will be too late? The ECB estimates it will be a month before it gets all the approvals it needs and can begin to implement its new bond-buying program. China’s central bank and the U.S. Fed have yet to even announce a new program.

It’s still a time to be cautious about investing in equities. Economic slowdowns worsened even as markets spiked-up in a rally since June fueled entirely by hope, a rally that already factored in much of what can be hoped for from the belated and in some cases still absent rescue efforts, a rally that has the market at multi-year highs, a feat usually accomplished only in times of booming economic conditions.

So, it’s not just that central banks are behind the curve, but that markets may be well ahead of not only the central banks, but economic prospects.

On the positive side, I like gold on which our indicators triggered a new buy signal (after being on a sell signal since February 29). And in the interest of full disclosure, I and my subscribers have a 20% position in the gold etf GLD.

Sy Harding is president of Asset Management Research Corp, and editor of, and the free market blog, He can also be followed on Twitter @streetsmartpost

Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends.

]]>Can the Stock Market Avoid Election Year Dip Fri, 31 Aug 2012 17:00:02 -0400 Sy Harding

Can The Stock market Avoid Election Year Dip?

August 31, 2012.

If the last three election years are any indication, the history of the three-month period of August, September and October usually being a downer doesn’t go away just because it’s an election year.

Perhaps ominously, this year the market is following a similar pattern to the election year of 2000, the year of the bitter George Bush Jr./Al Gore election. There was a sell-off from April to an early June low. That was followed by a similar summer rally that carried the market all the way back to the April high by the end of August. The Dow then plunged 15% to its October low. The Nasdaq plunged 27% to its October low, and 38% to another low in November.

In 2004, as the George Bush Jr./John Kerry election approached, the Dow fell only 4.5% from its August high to its October low.

But in 2008, as the contentious Obama/McCain election year played out, the market again topped out in late April to a June low. Its summer rally again ended in late August, and the Dow plunged 35% to its low in November, while the Nasdaq plunged 46%.

The pattern this year is also similar to last year, a non-election year but a year when markets also awaited a hoped for rescue by the Fed and ECB.

There is another similarity this year to elections since 2000.

Neither side shows any indication of meeting in the middle after the election to try to resolve the serious problems the nation faces, including the ‘fiscal cliff’ that looms early next year.

The old-fashioned idea of democracy meaning that elections are held, the majority wins, and then both sides pretty much pull together and work for the good of the country until the next election, went away in the late 1990’s, replaced by the pre-election differences continuing and becoming even more bitter and divisive in the years after elections.

I don’t know if that’s why the pattern of election years usually being positive for markets changed so dramatically with the 2000 election, but I think the widening political divide between left and right accounts for much of the going-nowhere difficulty the country has had since.

That’s particularly troublesome given that the Federal Reserve has been saying this year that it can only do so much from the monetary side, that Congress must now step up from the fiscal side, a view Fed Chairman Bernanke reiterated in his Jackson Hole speech Friday morning.

Sy Harding is president of Asset Management Research Corp, and editor of, and the free market blog, He can also be followed on Twitter @streetsmartpost

Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends.

]]>Vacationing Officials Return And So Do Uncertianties Fri, 24 Aug 2012 17:00:01 -0400 Sy Harding

Vacationing Officials Return And So Do Uncertainties!

August 24, 2012.

August has a history of being a boring month for news and controversy. The U.S. Congress is in its summer recess until early September, as are many governments elsewhere.

In Europe, government officials habitually disappear for August vacations regardless of any pressing problems. The seriousness of the euro-zone crisis did not interfere with that tradition this year. They made a number of positive comments and promises that reduced concerns about ‘will they or won’t they’ rescue the euro-zone, and off they went.

They’re now beginning to come back, and unfortunately so far they seem to be bringing the uncertainties back with them.

Prime Minister Samaras of Greece is trying to back away from Greece’s bailout agreement, requesting a two-year delay before Greece must meet the deficit targets, and implement the financial reforms it agreed to for its latest bailout.

German Finance Minister Schaeuble immediately responded that granting Greece more time or money will not help Greece overcome its problems.

Greek Prime Minister Samaras then set up a meeting with German Chancellor Merkel on Friday, and French President Hollande on Saturday to lobby them for the extra time.

Merkel and Hollande met prior to their individual meetings with Samaras, and after the meeting, Merkel said “It’s important that we all stand by our agreements.” Hollande said, “We want Greece to remain in the euro-zone. It’s up to the Greeks to make responsible efforts to achieve this objective.”

So the debates are back on as to whether Greece will remain in the euro-zone, will be booted out, or should exit on its own, and what the result of each scenario would likely be.

Meanwhile, Spain, an even larger problem for the euro-zone, accepted a direct bailout for its banks a month ago, and was expected to take the next step of officially requesting a bailout of its government debt, required before the EU can come to its rescue. But it has not done so, and has said it would want the ECB to commit to unlimited bond-buying, and needs to know what requirements and restrictions would come with a bailout, before deciding.

Instead, it is drawing up new rules that would allow it to intervene in its banking system and close down troubled banks, which is raising questions since the whole purpose of the bailout of its banks was so they could continue to operate.

Economic reports this week show the euro-zone remains mired firmly in recession. Even the United Kingdom, which is a member of the European Union, but not the euro-zone, saw its economy still in recessionary contraction. Its GDP has fallen in five of the last seven quarters.

And investors were disappointed this week by reports from China showing its manufacturing activity and exports declined again in August, once again raising concerns that its economy is coming down for a much harder landing than has been expected.

Here also hopes have been high for many months that China’s government will come to the rescue with dramatic stimulus efforts. But so far it hasn’t happened. China has cut interest rates several times, and has pumped some money into its economy through higher spending on infrastructure and public works. But analysts expect any major stimulus measures will be put off until the new Communist Party leadership takes over later in the year.

And so it goes. Promises, hints, and hopes everywhere, but precious little agreement or action.

In the U.S. it’s been expected at each of the Federal Reserve’s recent FOMC meetings that additional stimulus measures would be announced. But it hasn’t happened, just continuing assurances that the Fed is concerned, monitoring conditions, and will take action “if needed”.

The release this week of the minutes of its last meeting created brief excitement when the minutes revealed that at that meeting three weeks ago members of the committee were more concerned about the economic slowdown and almost ready to take action.

That raised hopes briefly that the Fed will surely take action at its next meeting in September. But then it was realized that at that meeting three weeks ago members were saying more action would likely be needed if economic conditions did not begin to improve. And indeed since that meeting economic reports have improved significantly, including the surprisingly strong jobs report for July, unexpectedly positive housing reports, retail sales up 0.8% in July after declining 0.7% in June, industrial production rising 0.6% in July after rising only 0.1% in May and June, consumer confidence unexpectedly rising in August, and so on.

It's difficult to picture the Fed taking action now, if it was unwilling to at its last meeting when the outlook was so dismal before the unexpectedly positive economic reports of the last three weeks.

After being down several days in a row, the stock market got a lift Friday from European rumors that the ECB is considering setting yield-band targets in a new bond-buying program to help contain borrowing costs for Greece, Spain, and Italy, and the release of a letter Fed Chairman Bernanke had sent out a few days earlier. But in the letter virtually all he did was repeat that the Fed will provide “additional accommodation as needed.”

As Friday’s market reaction showed, markets are still willing to rally on hope, at least briefly.

But after doing so since June, factoring into prices expectations of substantial and meaningful actions, they have reached the point where they need a lot more than just more hints, rumors, and stalled promises to prevent them from beginning to factor back out the expected actions that are still not taking place.

Sy Harding is president of Asset Management Research Corp, and editor of, and the free market blog, He can also be followed on Twitter @streetsmartpost

Editors: You are welcome to quote from this article, or use it in its entirety, in your publication or on your website, as long as the credit in the above paragraph is also included. Readers are also welcome to e-mail, or print and snail-mail it to friends.