SmartStocks - Page 5

Last time I spoke about how a convergence between the US Dollar Index and the S&P 500 would create this inflection point in the markets. Often times, people assume that inflection point means a reversal of a trend, but not always is this the case. An inflection point could mean a confirmation of a higher or lower move, depending on what stage of the market cycle you find yourself in.

This morning, both the US Dollar Index and the S&P 500 converged for the first time since early May, just a few days before the flash crash incident and the subsequent market correction. Although the convergence between the two was short lived this morning, what if anything does it mean? Is the inflection point implying a reversal of the trend, or a confirmation of a higher move (i.e. today was just a shake out)? How can the price of silver and gold help us determine in part, whether this is an actual reversal of a trend or just a confirmation of a higher move?

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Stop guessing the market, and start reading the market.

On average, post-election year performance has been weaker than the average year. With the November primaries just around the corner, are markets set reverse some if its gain it has amassed this year, or will the 2009 cyclical bull rally continue into 2011 and 2012?

It is clear by the chart shown below that historically, the year after an election is worst for stocks, but how true (or better yet, how strongly correlated are these variables today? Does it even hold true today?).

With some soft commodities reaching 52-week highs, could the commodity infused rally be on the contributing factors stocks extend their rally, or will a weaker dollar overshadow the commodity rally, sooner rather than later and derail the market run?

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This week, Goldman Sachs stated that the Dollar is set for a 'sharp decline' over the next 12 months. The firm expects the Euro to rally as high as $1.55 vs. the US dollar over the next 12 months and expects the British pound to climb as high as $1.79 vs. the US Dollar in the same time period.

According to Thomas Stopler from Goldman Sachs, “more QE is seen as a co-ordinated effort to get the dollar lower,”...... “It makes sense for the US.”

Separately, Goldman’s chief economist, Jan Hatzius, warned that the world’s biggest economy faces a “fairly bad” or a “very bad" scenario over the next six to nine months.

Source/link: http://www.telegraph.co.uk/finance/c...forecasts.html

So with so much uncertainty reining over the future of the US Dollar even at Goldman, what is really going to happen to the dollar 12 months from now? Are we at risk of seeing a massive devaluation of the U.S dollar over the next 12 months, thereby decreasing our standard of living and in the process lose 'real wealth', or is the dollar going to settle in between 75 - 85 on the US dollar index? What effects is this going to have on the stock market, and more interestingly, on the bond market? If dollar decays over time, then people here in the states will have less incentive to take on risk, because rates will continue to remain overbearingly ow for a long time. Is the stock market about to enter (or already in the early stages) of a huge boom? (as more and more 'fictitious' money continues to enter this never ending black hole. Or are paper assets such as stocks going to devalue as the Dollar devalues?

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As the unrelenting trend of stock outflows and bond inflows continues, what can we expect to see from the markets heading into the final months of the year? Are we going to keep churning higher, or are we at risk of facing a steep market correction?

To put things into perspective, in the month of September we saw inflows of $23.51B into taxable bond funds, and outflows of $16.25B out of stock funds. Although both of these numbers are slightly down if compared to August, leading us to believe that the trend will no ease any time soon (unless there is some external shock).

With that being said, a distinct inverse correlation exists between record stock inflows and market performance. That is, whenever there is a record inflow into bond funds and record outflow out of stock funds, the market performance is quite stellar (based on a 1-year forward total return). We saw this occur back in 2000, at the height of the tech craze, when stock fund inflows were at a record high, and market perfomance was at an all time low. Conversely, back in April of 2003 when stock inflows were at their bottom, the market posted stellar returns.

Although we have seen this correlation break up in certain cases over the past 10 years, the correlation by itself has been a useful tool itself to measure the overall bias of the market. With markets getting far more complex, will this correlation hold in the future and what can we expect to see going forward?

For more unbiased market commentary, excellent stock picks and reliable predictions, visit smartstocks.org

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Note: Starting on November 22nd, 2010, we will be offering a option trading service. Whether you have a small or big trading account it does not matter. Every single subscriber will be able to maximize their returns using our system. We hope to see more of you join us.

Figure 1

Hey MC,

Thank you for your renewed interest on the site. I'd be more than happy to give you a 7 day FREE trial when I start offering the option service on November 22nd. I've already added you to the email list, so your good to go (you will start receiving the newsletters on Monday, November 22nd). Anyone who is interested on the either the currently offered stock trading service, the up and coming option trading service or both, either let me know via PM, or preferably, send me an email to the email shown on the website.

I hope to see more of you join us.

jrband1, thanks again for the terrific testimonial. I cannot thank you enough

B]Global food crisis forecast as prices reach record high[/B]

Cost of meat, sugar, rice, wheat and maize soars as World Bank predicts five years of price volatility

http://www.guardian.co.uk/environmen...al-food-crisis

After reading the article, it got me thinking.
With commodities reaching "bubble like" levels, what (if any) impact is this going to have on the emerging market story?

As we all know, emerging markets have enjoyed incredible growth in recent years due to three big reasons (and I realize there are other factors in play, but for simplicity purposes lets just narrow it down to the top 3; a) vast amounts of investment (or capital) flowing into these countries (in the form of infrastructure, new business start-ups, etc), b) the rise of the middle-class (much like in the U.S during the early 1900's) and c) the rise in commodity prices.

Now, people betting on the emerging market story firmly believe that this trend of increasing consumption will continue for the foreseeable future as rate expectations (2 -3 years out) continue to be near historic low levels thus making all input costs (both capital and labor fairly cheap), as nominal incomes in most of these emerging markets continue to increase and as commodity prices rise above a certain level (or price) were most firms in the market are enjoying both economic and accounting profits, thus incdntiving other firms to join, in effect increasing the "welath effect".

Now, there is no doubt that what the Federal Reserve is trying to do is generate inflation any which way it can. Why? Well because we are in the verge of entering into a deflationary death spiral in prices (across all asset classes). Currently, the Fed is artificially jacking these prices higher (in the form of POMO operations) to create some domestic inflation in hopes of reviving demand. But think about it, if the Fed is trying to indirectly cause some inflation in this country, you better bet the inflation (or more appropriately the cost that each person will have to pay on a certain commodity) will increase even more so, as their economies are exported oriented economies.

So I guess the point I am trying to make is as follows; by trying to spur domestic inflation, the Fed is willing to "risk" the potentially to derail the emerging market growth story. Think about it, if inflation sprouts here in the U.S, it will spread to other countries (i.e. in the form of higher commodity prices). No matter how much incomes rise in those countries, in the end people will still have to pay more for pretty much everything (every input had to come from a basic commodity right?). The rise in prices will at the very least partially offset the rise in incomes, ultimately impairing consumption and well, growth. So the question then becomes, how big of a gamble is the Fed willing to take to create inflation in this country? Is it willing to take the entire world back into a recession if inflationary forces fail to revive domestic consumption?

For complete and comprehensive opinions on this matter (subject) and other related subjects, for unbiased market commentary and excellent stock pick, visit smartstocks.org.


Note: I've gotten a few more people interested in the program. I hope to see more of you join us

Earlier this year, I spoke about the correlation between High Grade Yields (i.e. bonds with rating BBB- or lower) and the S&P 500. In fact, the correlation between the two YTD (year-to-date) is .891, implying a strong mutual relationship between the two. However, in the last 2 months we have seen this correlation wane a little, as the S&P has made new highs while the HYG (the High Yield Corporate Bond Fund) has not.

To put things into perspective, back in January and February both the S&P and the HYG moved in lockstep. However, in early March the S&P and the HYG started to diverge, with the HYG trailing the S&P on a percentage basis. As you can tell from the chart below, the divergence lasted 2 months before the S&P started to roll over in the summer. During much of the early summer, the S&P and HYG moved in lockstep once again, but in mid-June we saw another divergence take place, this time however, the S&P trailed the HYG on a percentage basis. As you may already have imagined, the divergence lasted 6 weeks as the S&P continued to make new successive highs. Fast forward to today, and we are seeing another divergence (1-month into it) take place between the two. This time, the HYG is trailing the S&P 500 on a percentage basis just like it did back in March. If history is any guide, can we expect the S&P to rollover because of the constant under-performance of the HYG in the near future? What other factors are in play when analyzing this relationship? Is the HYG the best proxy we have to measure underlying market strength?

SPX vs. HYG - YTD chart



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Statistics:
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I will also be offering an option trading service starting on November 22nd. If you are interested in the program, I currently offer an amazing deal. If you subscribe to the stock trading service for 3 or more months, I will give you a FREE month of my option trading service.

I hope to see more of you join us

Hi o7media,

First, I'd like to thank you for expressing an interest in the website

Typically our trades take anywhere form a day up to 4 weeks to close. However, most of our trades close in 2 weeks or less. As you stated, most of the trades we recommend, you can trade using options. Someone who wants to optimize their profits or somebody who does not have that big of a trading account, can choose the alternative and trade options instead of stocks we recommend. In some instances, I even recommend subscribers who cannot short, alternate option trades they can place in order to take advantage of the trade.

A lot of people have asked me wether just joining the option trading service is enough to make money. My answer is a resounding yes, but if you want to really maximize your profits, I'd recommend you subscrube to both services, because there will be times we we will wrtie calls against our stock position(s), to create a little more income on the side while we wait for our trade to develop.

As far as time decay, that is of course an issue on all option trades placed, but most of the plays we set (or recommend) are hedged, so time decay, as it associated with other variables, become less of a factor.

The pricing for the option trading service will also be the same $29.95/month, $79.95/month (including the discount), etc.

If you like to capitalize on some of the trades we recommend and see what we offer, join our 7 day FREE trial. Just provide me with an email address were I can send the newsletters to. If you like the service (which we are 100% sure you will), then you can take advtange of the current offer - subscribe for 3 months to our stock trading service and we will give you a FREE month to our option trading service.

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Why not join our service, earn 4%-8%/month (guranteed) and earn up to 96%/year with our tradign service.

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smartstocks.org

HSM,

I wanted to share with you another site I started. Unlike SmartStocks.org, the information I post here is completely FREE and available to everyone! I'll be sharing my thoughts on the markets and economy on this site. You can expect me to post similar comments that I regularly post on the 'DOW 6800' thread and on the 'the coming commodity bubble' thread. For obvious reason, I will not recommend any trades nor will I tell people were I think markets are headed, instead, I'll let you know what to watch for.

I encourage everyone come visit us at least once a week @ stockstoinvestin.org

Note: I'll be writing some of my thoughts fom time to time here on HSM

Regards,
David (bigbull)

If your trying to access the site and a screen comes up that states that the site is under construction, simply hit the refresh button on your browser and you should be bale to access the site.

It is no secret that small cap stocks have outperformed big cap stocks in the last 20 years by an average of 8.4%. Similarly, small caps stocks tend to outperform large cap stock when coming out of a recession. With the S&P up a whopping 84% sine the March 2009 lows of 666, are small caps still the best place to allocate money, or is time to transition into safer investment such large cap stocks with higher dividends? Since market dynamics have changed, can we still interpret the information as we used to before?

For more unbiased market commentary, excellent stock picks and reliable predicitions visit smartstocks.org
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Thank Skewrl, you empowered and encouraged me make this post

Thanks Bigcat for posting your testimonial
I encourage other HSM members who are subscribed to the system and have yet post your testimonials to please do so at your earliest convenience, thank you.

A lot of chatter and questioning has been going on the Silver, Gold, Copper, Platinum, etc threads as to why the CME decided to increase the margin requirements for silver. Below I offer a comprehensive review as to why they did it.

The reason (at least that is my belief) why the CME increased the margin requirements from $5,000 to $6,500, wasn't really to fend off buyers, it was an attempt to curb mounting speculation from occurring within silver. As you well know, silver, gold, platinum, copper, etc have all hit fresh 52-week intra-day highs. The way silver was acting this morning made many believe (myself included) about a potential bubble unraveling within the commodity complex. Although the Fed would like to create some inflation here in the U.S (by essentially raising variable costs, i.e. keep commodity costs relatively high), the Fed does not want this Fed infused commodity rally (i.e. early bubble) to turn into a commodity bubble out of control. Why? Because with high commodity prices comes inflation. Even though most emerging markets are enjoying growth rates ranging from 2% - 6%, if inflation spikes over these growth rates, you will essentially have the global growth story derailed, as people would be earning less, relative to what they spend (or pay).

Not only is the Fed trying to keep commodity prices high for the sake of creating inflation, but it wants to obviously stimulate the export market and since a lot of people are holding onto gold and silver, if the prices for these commodities go up, people will generally feel wealthier, and the Fed is counting on this "Wealth Effect" to kick, to hopefully spur consumption. Will it work? I doubt it.

The question that needs to be asked is, how far is the Fed willing to push commodity prices higher and for how long? Will it turn into a bubble, or is it already a bubble? How do we trade it?

For the answers to these questions, for more unbiased market commentary, excellent stock picks and reliable predictions, visit smartstocks.org.

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With the recent market correction, some investors are baffled as to what propagated the recent downturn. Some claim that the BORSON (buy on the rumor sell on the news) effect of QE2 was the culprit. Others claim that rising yields (or widening CDS spreads) for Irish, Portuguese and Spanish debt and a relatively weak Euro are the culprits. Others claim that falling commodity prices has open the window for year end selling. However, one market that rarely gets looked at (from a retail investor point of view) is the $2.8T tax-exempt municipal bond market.
If you've read the paper, you probably read headlines similar to "California Faces Steep Costs Increases as State Issuing Hits a Fever Pitch". It is no wonder then that the recent increase in state issuance has in effect, increased the yield (or cost) that municipalities and local and state governments need to face. In fact, 20 - year debt is at its highest level since 2009, with long term yields across maturities rising by about 0.5%. As a result, we've some of these 'munis' ETFs breakdown in an rather abrupt fashion, causing great distress in the financial markets.

Having that said, 'munis' are a favorite of affluent, often-retired individual investors because they provide tax-exempt interest payments and are widely regarded as stable assets. However, as we just discussed, 'muni' ETFs have come down considerably in the last 2 weeks. Some have completely wiped out this years gains, and are on track to erase the gains seen in 2009. Now the problem here is two-fold; a) states are not receiving enough revenues to compensate with the rising long term costs (i.e. yields or 'added burden') and b)the Fed inadvertently created a bubble in the 'muni' market (and is in the process of exacerbating that bubble) by trying to keep short and long term mortgage rates lower (i.e. with the excess liquidity build). Ultimately, this will lead to a drastic reduction (in size) of the 'muni' market over the years, as costs overlay revenues.

The problem going forward however, is that by keeping rates low, the Fed will exacerbate the 'muni' bond bubble by encouraging rampant speculation. In other words, investors will demand higher yields (represented in the long end of the curve) to compensate for the high risks their taking. The higher and higher yields extend on the long end of the curve, the bigger and bigger the inefficiencies in the market.

In addition, if 'muni' bonds come down considerably (or stay at a low level for an extended period of time), the less consumption power baby boomers (which by the way, have already hit a peak in terms of consumption and are now in the latter part of the bell curve - i.e. in the declining portion of the bell curve) will have. Thsi will ultimately hurt domestic consumption, and you guessed it gloabl profits. In effect, what you see is the same problems the Fed is trying to get rid of, re-circulate themselves but in a different fashion.

Although it is too early to call for a bond bust, can this mini 'muni' market bubble bust (try saying that three times in a row) be just the blip of a bigger bond bubble about to go bust?


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Note: Starting on November 22nd, we will begin offering our option trading service. We offer a 7-week FREE trial if you are interested. Come join us and see what all the 'fuss' is about. We guarantee the optimization of your profits and the minimization of risk.