Wednesday, September 30, 2015

What Goes Up - Must Come Down

...Turn out the lights, the party's over are a few expressions with a lot of truth and speaking of truth, the "old professor" spoke directly to the point when Yogi stated, "In theory there is no difference between practice and theory. In practice there is." I don't know if Yogi was referring to the Fed with their belief in engineering our economy, but he often talked about economics, especially with his well known, "a nickel ain't worth a dime anymore." So, in another tribute, here are some visible signs that don't need any words to describe.
US Market
*The Dow Index topped May 19. It has retested and failed in price and volume.
*Dow Transports peaked last November and are down 20% which is BEAR territory.
*Dow Utilities reached their peak last January and are down 18%, just 2% from BEAR range.
*Small Caps are at resistance, but still down 12%.
*Nasdaq peaked in July and it is down 21%. Do you need a Bear hunting license?
*German Dax and British FTSE peaked in April. Dax down 24% and FTSE down 19%.
*China's Shanghai Composite is down 42% Ouch!
*All channel trend lines are broken in all indexes in all markets.
Second Opinion
Elliot Wave is calling for a fifth wave in his cycle technical theory. The fifth wave will be down and possibly a big move, taking the Dow to 14,200. At this moment, I see a short bounce, taking the S & P to around 1929. Nothing like those four digits(1929) in October to make you want to buy the dip. A classic "dead cat" bounce.
All of the above is due to cheap money by the US Fed and central banks around the world. This printing of money distorts the free mechanism of the market, but when a nickel ain't worth a dime, you know manipulation is the cause. There was a positive aspect to the printing, but keep in mind it was the original manipulation by the Fed which sparked the financial crisis in 2008 in the first place.
Under the PRO side is that it allowed corporations to refinance previous debt at lower rates. Good.
Under the CON side it provided temptation to CEOs to buy-back shares which made them rich through options, while at the same time this leaves the company with too much debt and no new research or products to show for the use of its capital. Extremely Bad.
This is just a sampling of S & P companies taking this route.
*Apple issued a bond for buy-back purposes and it cost $23.6 billion with a "B."
*MetLife issued a bond for the same purpose and added debt of $1.5B.
*Microsoft sold $10.75B for buy-back shares.
*Oracle raised $10B for the same purpose.
In fact, according to the Securities Industry and Financial Market Association(SIFMA)US companies issued $1.1 trillion with a "T" in bonds in 2015 which is up 15% from 2014. They have been up every year since 0% rates. This is debt that has to be repaid and if rates rise, will burden all these companies. Then again, the present CEOs will be sipping cocktails at the country club while their former corporations suffer sometime in the near future. This is why there is a difference between practice and theory. How about this insight dear reader?
A journalist recently asked the chair of the Fed, Janet Yellen, if the central bank would keep interest rates at 0% forever?
Her response: "I can't completely rule it out."
They are making up the rules as they play with our lives and all they know how to do is to devalue our money by printing more of it to win the monopoly game. This is another reason why I say, End the Fed!