End of Year / Over Last 6 Years

Last day of trading for 2013 and the numbers below show this year's price performance of the particular index or stock against the overall price performance since the end of year closes 2007.  DJIA is up 26% in 2013 and up 25% over the last six years.

DJIA +26% / +25%     SP500 +29% /+24%    NQ +35% /+70%    AAPL +4%/ +180%

BAC +34% /-62%    GOOG +57% /+60%    GS +38% /-18%     IBM -3%/+72%

MSFT +40% /+5%    F +18% /+127%    PFE +22% /+34%

More Bernanke Bubble

The Bernanke Bubble keeps growing as Fed policies help to carry stock indexes to new highs.  The bubbles always collapse.  However, if you have been stubborn enough to insist on a short or die attitude,  you are broke.    Beating the benchmark stock indexes this year has not been easy and  successful strategies do not point with greater insight as to when the giant price construct in asset prices end.   Ben has had few tools but those designed to unfairly aid the top and which has created a unique re-framing of capitalism for only those of influence.  Why should the top suffer when there are means to reward those who are positioned to benefit the most?

The collapse of the Bernanke Bubble will eventually come and look much like all the other stock market failures of the past but whose repair will be without the ability to foster goodwill from the greater population. That could be ugly.

Sell The Top Day

I have designated Thursday, October 31 as "Sell the Top Day".  It just happens to fall on Halloween and there are some ghoulish data elements to the big hump in stocks.

1.  While stock ownership is at a record low, speculative money is now pouring into stocks at the fastest rate since 2000.  The first tells you the boomers are done with growing stock portfolios.  The second tells you risk aversion is gone and the selected public would now rather seek a gain than avoid a loss.  Bad news.

2. The rich are tearing down homes at a record pace across the nation to build bigger ones.  This was Ben Bernanke's main wealth effect strategy.  His ideas was that if he pumped asset prices, primarily stocks, the rich would buy your house if you lived in their neighborhood and they would take it in foreclosure if you lived in your neighborhood.  Its working.

3. It takes Fed intervention of 85 billion a month and the treasury's already trillion plus to keep stocks higher.  It takes one word in a Fed statement to crash it all.  Now this may sound scarey but no one remembers what down looks like.  Scarey down.

Driving Air

The only distraction for investors now will continue to be the increasing high pitched sound of air being forced into the only opening of the equities balloon chamber.  The noise is distracting  but can be removed by wearing an Equity Manager's Headset manufactured by the Fed and sold at any business cable news outlet.  The headsets are constructed of two ten year notes held together with Wall Street's and Washington's favorite material, Ivy.  Though the material is considered not safe by previous users, it continues to be popular and is especially worn to major financial events.   The headsets can also be used when driving while texting at high speed, downhill, in heavy traffic.  

No Matter What Happens, Managers Will Still Be Clueless

Where the markets ride on the road through good news/bad news is only important to managers who  do not have a clue on how markets work.  A collapse or a surge higher in equities will be a short term opportunity.  The fact that managers cannot consistently deliver alpha no matter their pedigree is proof that most of them are accidental winners and perennial flat liners.   Up has always been the favorite of most successful macro equity managers and volatility with front running solutions has been the HF's bank.   Big Data momentum prop houses will be the next mediocre performers as short term momentum strategies will end up chasing their own tail as tightening latency solutions will deny any price separation opportunities between good news / bad news. 

Budget /Debt Ceiling struggles have gripped hard on upside hopes as congressional true believers bleed to promote a form of government servicing the privileged at the expense of those of lesser means.    But all governments in their evolution struggle with factions of extremism, adopting a tiny portion of their ideas but letting the bulk of it destroy the extremists who promote it.  

The problem in this particular market construct is the world has become accustomed to asset intervention and the belief it will always be delivered and will always work.   A default would be certainly bring significant flight to cash not seen since 2008.   A solution would put the bears on the bottom yet again.

Double Tops Never Fail

This is a double top of the ugliest sort.  A look at the top 1% share of total income.  The last time it was this high was in 1928.
Data from Mike Konczal (Rortybomb) of Next New Deal .

Bernanke Slaughters Bears/ Performances

Bernanke stuck it to the bears in stocks and bonds yesterday.  Bears in bonds will need an event not on the screen to reclaim any hope this year.  Bears in stocks will need a twist in debt ceiling/budget game.

Much talk has been about the anniversary of the 2008 crash.  Here is an accounting of eight stock performances this year and since December 31, 2007.  The first percentage return is this year, followed by last 5 years.

AAPL  -13%/ +134%  BAC +27%/-61%   GOOG +28%/+31%   GS +32%/-22%

IBM +.09%/+80%    MSFT  +25%/-6%  F  +36%/+134%  PFE  +16%/+26%

The Giant Squeeze On All Edges

Market topping action continues with Bears pushing hard to get the S&P500 action below 1650 to begin the journey back to 1550 for starters.
 
Tough year again for the general mass of fund managers who year after year continue to have lousy returns.  The HFT shops have found themselves lost without the ability to meaningfully front run any other HFT as Big Data looks like is will also be a big waste of time.  Every other proprietary firm is now either pimping services as a sell side vendor or working on the next big staff reduction.
  
Many of the desperate are pinning their hopes on the fixed income  death dive tsunami which now has been greatly anticipated each of the last three years.  This may be it but it probably isn't.  
 
The giant squeeze on all edges is upon the world.  Over employment has been replaced with falling work force participation but oddly creating falling unemployment rates.  Great trading performances have fallen victim to the great regression where what was once thought of a shop after shop and firm after firm of trading talent is now revealed guys looking more like the clueless they always were or even worse, as dumb as bankers.  Just showing up is out of business. 

Markets are more concerned about who the next Fed Chairman will be than war in Syria or the US budget deadline.  Obama looks like he has given the edge to Summers who knows less about markets and more about opportunism created by being a repeat offender creating personal wealth through public service and Ivy League circle jerks.   Markets don't like him because he is unpredictable.  Most don't like him because he is a jerk.  

QRiskValue

QRiskValue continues to bring the best of decision/analytics to its principals.  BaseOp2 relies on QRV data.

QRiskValue Ratings

Bernanke mixed signals on stimulus is a nod to the hawks as to the eventual winding down of stimulus.  And while it is clear  the Fed has managed to pump up a variety of top driven elements of the economy, some large financial institutions remain deceptively vulnerable.  Bernanke seems to realize there may be a grave danger in cutting help too early.

QRiskValue builds trading decision models and market analytic strategies on derivatives and a select number of stocks. The firm measures whether or not there a significant enough opportunity to take the risk of buying or shorting something.  So QRiskValue does not provide price targets but measures the overall quality of the risk being considered. According to QRiskValue, as of Friday's close, only MSFT is the only stock it covers with a highest riskvalue, on the buyside.  The highest QRiskValue on the sellside was BAC.  

Bend Like Bernanke

Bernanke took a page from Greenspan's playbook and played to the market bulls as he backed down yesterday from previous comments on his attempt to trim what Greenspan once called stock market "irrational exuberance".  Greenspan was great a looking responsible, but at any sign of stock market downside momentum, Greenspan would shamelessly wimp to Wall Street.   Ultimately it will not make any difference in avoiding the correction to the massive over reach of the last two years.  Upside rationale always seems infallible inside the glory of the rally.

End of Jubilee Days

Markets had a bad week with Bernanke deciding on Wednesday to speed up the  end of jubilee days after being virtually fired by President Obama Tuesday.  DJIA and SP500 dropped back to the idiots only break out level of April and now are poised to see whether they continue to slide now or wait till fall.  At the least,  DJIA will test the 14350 area with SP500 coming into 1550.

Bears Running Out of Room In AAPL

AAPL has now come into a value area where establishing long positions is a better option than being short.  It will now begin to retrace some of the declines made over the last several months but will be disappoint the koolaid bulls and have to become a great stock fairly priced.  Buyers will be able to establish longs between 385 and 420.  Having been bearish for sometime, those late to the party may trot out the 300 target, but they should have sold it long ago.

Good Luck. Again

S&P500 closed at a record high with every indication the great rally will never end.  Now the valuations of market indexes such as the 500 are rarely wrong.  Well except almost always.  Back in September and October of 2007 when I called the bubble then, same dopes were chiding me for evidence of any breaks.  This time the markets are in a unique position of having a fund raiser rooting from the Fed instead of the usual retail buyers who usually take the professionals positions from them at record highs; the position the pros bought long ago.  This time however the pros will have to sell back to their own kind as the generational risk averse stance of the boomers will be unyielding in their rejection of this market.  Their view; better to avoid a loss and than seek a gain.

This market is bubble time.  Good luck again.

When Padding Becomes Pudding

Both the ECB and U.S. Congress believe the markets have enough padding in gains that the policy makers can be uncompromising in their stands on debt relief for the former and debt ceilings for the latter.  This is a serious miscalculation as any savvy market professional can tell you the velocity of the downside is significantly greater than any upside move.  The meandering of the upside's relentless grind is easily eclipsed by the fall.

The old saying on the trading floor;  Eat like a  bird,  s__t like an elephant.

Overbought/ AAPL or GOOG?

It would seem GOOG would be the obvious choice here given it is up 15% YTD and AAPL is down 15% YTD.  But data from QRiskValue would still say it is AAPL on a percentage basis of current value.

QRiskValue's metric supposes there is a premium one would be willing to receive to give up on the upside prospects for a stock.  Conversely one would have to paid a monetary incentive to purchase a stock in order to protect oneself on the downside. 

As for AAPL and GOOG, while the dollar amount would be higher for GOOG to give up your upside; ($260), the percentage is roughly about 36% of current value.  On the other hand it would take about $189 to give up on the AAPL's upside or about a 41% of current value.  However it does tell you the koolaid test is held by GOOG where sentiment about the prospects for new highs are strong, while the AAPL prospects, adding payout premium, is shy of record price of over $700. 

What you would have to be paid to get out of your love position and how incentive protection it would take to get one to buy a stock tells much about the riskvalue of the market. 

Truth in Selling

The underlying truth about value is always being distorted by those wishing to benefit from the disinformation.  S&P rating agency knew packaged mortgages were of substandard grade when giving them top ratings because they new the truth about what it took to perpetuate their own business model.  The Fed new the world banking system had run out of money essentially funding a growth model the Fed itself had endorsed through its governance and guidance.  So much money had been put into play on debt that there was no where to turn when the big bet failed.  To fund the next leg and possible the last leg of US/world growth required taking the future savings of a nation to inflate the paper assets of banks and their clients.  The truth is those paper assets are worth substantially less than the size of the obligations required to settle accounts on world debt given the markets trading those assets have act as a liquidator to claim them.  The truth is markets act as a pricing tool to transact a sale and selling is the end game.

Bloated Cows

Bloated cows seen floating above ground in Bubblelot as stock and index prices ascend.   Even pigs like AAPL and F have been seen grazing on bear as short position feed lots are near empty.   Ben of Bernacke has not been seen, seeking to use this time to estimate the duration of punishment to hand out to fixed income bulls.  Bear hopes have eyes cast to the Black Knight of Overnight where it is believed a catastrophe from the land of  Sovereign Failure is approaching.   

HFT to Reversion : The Greatest Marginal Advantage

Having been a part of building operations which are strictly HFT and absolutely reversion, here are a few observations.

 As we know, from HFT to reversion, the slightest edge, informational or strategic can make the difference.  For HFT it is doing whatever it takes to get a peak at momentum or over weighting the probable.  With reversion it is under weighting an event which will occur but no one knows where or when.   HFT will not accept the market's underlying volatility and is a market taker while reversion accepts it and conversely is a market maker.   Unlike most investors, HFT is risk seeking with gains for very short durations in time and are risk averse with losses over longer durations in time.  Time to reversion is not meaningless but definitely not as important.  So markets in time are always looking for the great marginal advantage (GMA). 

In reversion time, here is QRiskValue's Over/Under Values along with GMA leanings.

Operation Descending Exponential Twist

Ties that bind the banking community to the Fed and Treasury,  which help  bring about the near collapse of the world banking system in 2008, to the rescue through the secret terms of TARP, to the new Bernanke Bubble in 2013, the same outflow and inflow investment cycles prevail.   Fund outflows found the bottom in 2009 and now fund inflows funding the top in 2013.   Their entrance into the market comes after a DJIA rally of 114% from 2009 lows and a mere 33% higher since the Fed instituted Operation Twist in September of 2011 as the markets were about to renew their downside momentum.   But just as this blog warned of the AAPL bubble floating where ever in may, so to will the S&P 500 and the DJIA drift with the collective descriptions of wonder attached to their ascension.  But just as before, those subtle negative calculations begin to factor until a descending exponential event occurs sending markets lower. Same game.

In Bubbelot

Market continues to bubble-up in Bubbelot, a land of the great expectancy of continuing low rates, low volume, and lots of lowly.  This is the time of season when the impressive gaming occurs over the hills of  stock expectations. It is a thing of beauty where an analyst and the company he covers dance together over better than expected earnings.  What a surprise. There is joy everywhere.

And it came to pass in the land that there was plenty of talk about the how everyone had missed the big move in stocks.  This could not stand. Yet one might understand however why the folks in Bubbelot might be afraid of getting smoked by the great downside again after being so patient for anything good for the previous 10 years.  Their great hero, Ben of Bernanke, a tiny little man of great intervention, has committed himself to the struggles of the lessers by instituting what is being called the great wait and see.   There is much to live for in Bubbelot.

Happy Anniversary Collapsing DJIA

It is only fitting as we mark this week, the 13 year anniversary of the DJIA hitting a high in 2000 before it collapsed from euphoria, with the celebration of two creative ideas made over the last week or so;  the trillion dollar coin and Buffett's declaration that banking is forever clear of disaster.

The trillion dollar coin concept ranks right up there with all great concepts that occur when all the koolaid is gone.  Turning all the challenges in life into good thoughts where nothing bad can happen and everyone is good at sports.   

And now Warren Buffett, who looks at the world from a vantage point as market wizard with extraordinary perceptions that go beyond any bearish thoughts formed by ordinary accounting, says the banking system in the US, which went broke just five years ago, is now fixed even without much change in their cloudy murky real financial status.

A trillion dollar coin for you, and a banking system for you, and good everywhere where accounting is a bother.

Delivering Up

Today's sharply higher opening reminds me of the first trading day of 2000.  Markets exploded on the upside as investors tried to get in on what was thought to be another year of up.  It would of coarse ultimately represent a market beginning to hit severe stall speed.  That year turned into crap as the market players scrambled to adjust to the downside momentum of the bubble burst. And while no two markets are the same, it seems impossible to believe in whatever perception of good which may have seemed to have been delivered by the Fed, Treasury, or Congress is for any other reason but to continually perpetuate a notion that in seeking returns, price is a proxy for value.  It is an approach where all values are put at risk.