BARRON S. America s premier financial weekly. AAII WDC 2014

Transcription

1 BARRON S America s premier financial weekly. AAII WDC 2014

2 Take it apart! Wrap Market Week Special Report Top 100 women Financial Advisors

3 Barron s Wrap Up & Down Wall Street PG 7 Super Mario D Word! Slices of Pizza Streetwise PG 11 Stillness A sign of trouble ahead? Low VIX rarely a sign of immediate pain Index To Companies PG 12

4 Barron s Preview PG 15 Preview This Week Consensus Estimates May Retail Sales (Thur) Big Gains expected June Mich Sent (Fri) Consumer Sentiment Coming Earnings H&R Block (Wed) Beat 3.23 est

5 Barron s Mutual Funds PG 43 Mutual Funds Profile ETF Profile $1.7 tril Hedge Funds Monthly Best, Worst, Biggest Special Packages Barron s 500 Best Fund Families

6 Barron s Market Week Every Week Cover Refer to the Stats Index Market Data Center

7 Barron s Current Yield PG M9 Bond Center Global: Short Term rates Long Term rates Yield Curve US Credit Week s most active Investment grade High Yield Convertibles

8 Barron s Striking Price PG M11 Equity Options CBOE VIX: VIX close VIX Futures Equity-Only Put-Call Ratio: Is a buy/sell indicator Skews: When skew is high, it means puts are in more demand, and investors are pricing in more downside risk SPX (options S&P 500) NDX (NASDAQ)

9 Barron s Research Reports PG M13 Insiders Transactions Recent Filings Insider Transactions Ratio Bullish/Bearish/Neutral

10 Market Watch PG M14 Sample Advisory Opinions Furthermore, both economic data and corporate earnings continue to look healthy the eventual violent break will be to the upside. Michael Shaoul/The Weekly Speculator Although this year might prove the economic performance of the recovery, it may also produce a volatile and frustratingly flat stock market. James Paulson / Wells Cap Mgmt

11 Barron s Market Week Every Week How To Read Bonus Tables Phone & Tables online M15

12 Barron s Market Week Every Week Mutual Funds (Top 2500) M40 Cash Track: 4 week moving avg of cash flows (Out EQF, In TBF) EQF = In 3.9 bil; MMF = Out 2.4 bil; MBF = In 783 mil; TBF = In 5.4 bil

13 Barron s news moves the Markets, but the Market Lab shows the market direction! PG M47 Stocks Bonds Indicators

14 Barron s Market Lab Stocks 1 PG M47 DJ Half-Hourly Strong open/high volume, possible correction later in day Weak close, weak open next day Hypothesis future trends based on historic performance. New indexsubtracting open ½ hr. and closing ½ hr. Dow Jones Averages

15 Barron s Market Lab Stocks 2 PG M48 Intensity Week in Stocks Arms Index 4 week moving avg < 1 in advancing > 1 in declining Stock Volume NYSE 15 most Active Avg Price % of total vol

16 Barron s Market Lab Stocks 3 PG M49 DJ US Total Mkt Industry Grps Sector Analysis Consensus Operating Earnings on the DJIA (not same as P/E s Yield table)

17 Barron s Market Lab Stocks 4 PG M50 Weeks New Highs & Lows Dividend Jump (when needed)

18 Barron s Market Lab Stocks 5 PG M51 Indexes P/Es & Yields Coming Earnings jump Treasury Auctions Record debt sales Equity Financing New IPOs

19 Barron s Market Lab Bonds PG M52 Weekly Bond Statistics Barron s Confidence Index Best Grade Intermediate Grade

20 Barron s Market Lab Indicators PG M53 Money Rates Federal Reserve Databank Scott Black Investor Sentiment Market Sentiment Delta Tactical Money Supply

21 Barron s Market Lab Indicators 2 PG M54 Barron's Gold Mining Index Pulses Employ data Eco Growth Consumer Confidence Electric production Howard Silverblatt Scott Black

22 Barron s Market Lab PG M51 Dividends Payment Dates Ex-Dates Payment Boosts (jmp) Stock Splits (jmp) Reductions (Requested)

23 The Bernanke Tide And Unconventional Monetary Policy In Warren Buffett s famous formulation, only when the tide rolls out do you see who s been swimming naked And the sooner they get dressed the better! Direct correlation between the growth of central banks assets and the S&P 500. Increase in Feds balance sheet to $4 trillion and less recognized is the impact QE has had on Interest rates. Risk on! More to come on yield curve. Our bull market has been midwifed by exceptional central-bank support and interest rate cuts. Kopin Tan Extreme liquidity creates market distortions and the longer you have it in place the more the distortions become a problem. Mark Stern/Bessemer Trust Don t fight the Fed! Monetary conditions exert an enormous influence on stock prices. Indeed, the monetary climate primarily the trend in interest rates and Federal Reserve policy is the dominantfactor in determining the stock market s major direction. Martin Zweig

24 Unconventional Monetary Policy Ed Yardeni Perma-Bears sin of omission Don t Fight the Fed Or BOE, BOJ and ECB

25 Where is the Market going? Dow Theory M47 Production vs. Distribution Q to Q agreement DJIA Up 9.6% DJTA Up12.4% Q to Q disagreement DJIA Down 0.7% DJTA Up 2.4% Q to date agreement DJIA Up 1.7% DJTA Up 5.6% Agreement in over Q3 and Q up. Industrials started to stall 1/6. 7 tremors 6 up 1 down. Major DISAGREEMENT. Putting in a market top. Currently both are pushing all-time highs. And is agreement. Good news. How? Daily contradictions (tremors). In Half- Hourly on M47. An indication of market tops/bottoms and possible change of direction.

26 Where s the Market going Dow Theory (continued) Tremors (Ripples) DJ Half-Hourly Averages From 1/2/2014 to 1/15/2014; Six (6) Tremors Transports Up 3.0% Industrials Down 1.1% 6tremors

27 Where is the market going 200 day Simple Moving Average 200-day moving avg on the DJIA Historical analysis for +10% over 200-day moving avg: 8/1929: 18.3% above; 66% correction (The Great Depression) 8/1932: 21.3% above; 15% correction (TGD part II) 7/1933: 50% above; 25% correction 6/1935: Approx. 10% above for 2 years!the longest stretch over 200- day moving avg; 45% correction in 1938! Passed thru 200 dma twice. 4/1971: 16.7% above; 17% correction 9/1987: 17% above; 35% correction 8/1998: 11% above; 18% correction 9/2006 to 10/1/2007: 10.7% above on May 29, 2007; 51% correction 7/16/2009 to 6/11/2014: Approx. 10% above for over 4 years!with out a significant correction (15% summer 2011). Past correction s avg = 32%.

28 Where is the market going, continued Shutdown OT Extended QE-Infinity Taper QE1 QE2 Operation Twist $10 bil (-3.8%) QE1 Expanded Declining Volume

29 Where is the market going, continued (499 sma) Long in the Tooth!

30 Where is the market going, continued (Hat Trick) Industrial/Transportation/Utilities All-Time highs

31 Where is the market going, continued There s no better illustration of how far afield expectations have run from reality than this chart. Having given the economy the benefit of the doubt for the better part of 3 years, just as they did following the housing bust in 2005, investors will finally accede to reality. - Stephanie Pomboy

32 Where is the market going, continued Stephanie expects the news(seasonal adjustment issues to weather and above all the massive inventory unwind.) will continue to look bad and the reverse rotation out of stocks into Treasuries to gain pace. In fact, as you might surmise from the placement of the last red arrow in the chart above, she fully expects we will trace out a downside similar to that of 2000 and Stephanie Pomboy

33 Market Intensity PG M48 Arms Index Relationship between number of stocks that increase or decrease in price and the volume associated with that increase or decrease. <1 = Vol in Advancing >1 = Vol in Declining Why Declining? Big cap

34 Is it a broad movement? Breadth M18 Daily advances declines totaled and added to the previous week. Reflects the thirst for all financial assets. (Common stock, CEF, REITS, Preferred) Reached an all-time high of 387,030 last week (June 6). Up, Up and AWAY!!

35 Is it a broad movement? M48 Week in Stocks DJIA Up 1.0% ytd SP 500 Up 4.4% ytd DJ Idx US Market (Total Stock Market (smaller)) Up 5.4 % ytd Biggest Losers: DJ Idx Internet Down 4.2% ytd Russell 2000 Down 0.4% ytd Biggest Winners: DJUA Up 9.8% NYSE Market Comp Up 11.83% Overall slightly up for large cap. Slightly down for small-cap.

36 Market Top or Bottom? 52 week Hi/Los M50 top Peaking this week most certainly will be declining 2/3/13 = 13.0:1; 3/3/14 = 3.6:1; Currently = 2.4 to 1 Fewer highs in market reaching new highs is a sign of market top. More highs confirmation. Fewer lows in a market reaching lows is a sign of market bottom. More lows confirmation.

37 Market Top or Bottom? NYSE Margin Debt M51: All time high in February at 465,720. April just off the high. Surpassed July 2007 high (381,370) in April CBOE Volatility Index (Fear Gauge) M11 Calculated from prices of S&P 500 index options. Expectation of movement 30 days out. VIX fell to mid last week. A low VIX implies investor complacency. Over 21 in Feb. Currently = 12.56% VIX futures Mind the gap. Fear and loathing. Volatilityof the Volatility Index. 68% increase in 8 days! And then decreased 37% in the next 9 days.

38 Market Top or Bottom? The Equity-Only Put-Call Ratio M11 The equity-only put-call ratio the daily sum of all puts traded on all stocks divided by the sum of the all calls traded on all stocks on the same day is a reliable indicator. The ratio is printed each week in the Striking Price. When the ratio peaksand begins to fall, that is usually a good time to buy stocks. The chart on this page shows one peak, end-june When bearish put volume was extremely heavy, compared with bullish call volume. Both were excellent times to buy stocks. The ratio has fallen since July s peak. When the ratio puts in a bottom and begins to climb it is usually a good time to sell stocks.

39 S&P 500 Skew M12 Market Top or Bottom? Measures the difference between the implied volatility of puts and calls that are 10% out of the money and expire in 3 months. Skewindicates whether the options market expects a stock market decline or advance. Higher readings mean sophisticated investors are feeling Bearish Lower Bullish Excessive optimism is an indicator of market tops

40 Investor Sentiment M13 This week: Buys = 12.8 mil (down 70% since 6/6. Low of 2.8 mil 1/16) Sells = mil (down 13%since 6/6. High of 662 mil 2/24) While never a great timing tool, heavy corporate-insiders selling is a warning sign worth heeding (300 mil is moderate selling). Feb rally saw EXTREME selling! A ratio over 30 watch out. The current reading is 29, was 10. Selling is staying moderately high. Buying is decreasing. Previous spike 80, was an extreme lack of buying.

41 Investor Sentiment M11 August 17 edition of Barron s: Streetwise by Kopin Tan, Another yellow flag: Company Insiders sold $524 million of shares and bought less than $15 million.

42 Investor Sentiment continued... AAII Index PG 53 Is extremely neutral at 38.3%. Off a10 year high 43.8 in May. Very rarely do these folks not have an opinion. AAII is typically a contrarian indicator at extremes. Consensus Index High readings are signs of Mkt tops. 67% Conference Board Consumer Confidence (Pulses PG 54) Fell to a historical low of 26.9 in March 2009 Up to 83.0 in May from a revised 81.7 in April. Up yoy 11.7%. An index of 90 indicates a healthy economy.

43 AAII Sentiment Index M53

44 Market Sentiment Delta Mkt Sent PG 53 Measures the position of 3,600 stocks relative to an intermediateterm (75 days) moving average crossover (MAC) point. When greater than 50% of the stocks followed are above this point, the market is bullish and equities are attractive. When the indicator is below 50%, risk is elevated and stock exposures should be reduced. This week: 60.7 Reduces exposure to bad months. While keeping most of good months. Sell mid-july 2008 Buy April 2009 Sell early-august 2011 Buy mid-october 2011

45 Market Sentiment, continued Citigroup Panic/Euphoria Model (online only) Up & Down Wall Street (11/4 edition) Dubbed the other P/E clocked in at is most euphoric since 2008 in March. Still high.

46 US Treasury Yield Curve M9 Bills, Notes & Bonds M39 What are the difference between bills, notes & bonds? 2011 issuance of $1.3 tril another record of $1.65 tril over $1.5 tril! 2014 on its way See Auctions, pg M51. Inverted curve (Sept May 2007): Banks were broken! Perfect indicator 8 for 8. 2yr 10yr spread and recessions (Currently 2.19) 7 year sweet spot of curve. Why? Medium credit risk (likely hood of payback) and medium duration risk (erosion by inflation). Steepest part of the curve. Foreign central bank appetite for US debt shriveled when the Fed mentioned taper. And are net sellers. 2yr Floating Rate added

47 US Treasury Yield Curve M9

48 Electric Power Consumption (Pulses PG M54) There are many measurements of economic activity. One of the best by far is Electrical Power Consumption. Barron s has been publishing this weekly data series since CIA predicted the collapse of the Soviet Union. Contrary to USSR s press releases. In 45 of the past 58 years, year-over-year growth exceeded 2%. Only 5 years since 1950 has electricity demand dropped to 2009 was the sharpest falloff in 64 years! And the 1 st period of consecutive annual declines in the same time frame. Some Utilities don t expect demand to recover to pre-recession levels until 2013.

49 Electric Power Consumption article in Barron s Doubts Rise as China Touts Upturn (9/13/13; WSJ) China s industrial output, electrical production and exports have posted solid gains. But Debt as % of GDP is 200%! And copper demand drops. The Global Economy is in dire straits (4/22/13; Barron s) China s electricity production and rail freight volume is faltering Deeper Slowdown suspected in China (7/12/12; WSJ) Compares Electric Consumption vs Industrial production Debating Lies, Damned Lies, and Chinese Economic Statistics (7/26/12; WSJ) Compares Electric consumption vs GDP

50 Why? Stocks lead the News Bonds Lead the Market M52 Because the bond market sets the cost of money and is the most sensitive to market changes in inflation outlook and risk appetite, it typically knows more sooner than stocks. Best (AAA-AA) and Intermediate (A-BBB) grade corporate bonds, particularly those with 15 or more years to maturity, predict market changes in the economy very well. Showing ups and downs in both hiring and production a year before they occurred. Bonds Corporate Selling at record pace! 2013 total was a record at $1.11 trillion. High Yield Off All-time low yields; Record amounts and still making money at 5%

51 Barron's Confidence Index M52 What is Barron s CI? It s an investor sentiment gauge of credit risk tolerance. It is the ratio of the yields of 10 best-grade bonds (AAA AA), to the yield of 10 intermediate grade corporate bonds (A -BBB). Only 5 AAA companies: ADP, XOM, JNJ, MSFT and Pfizer (on watch). Just lost Assured Guaranty last of AAA bond insurers. Why Does it work? A falling ratio is a sign that bond buyers are willing to accept a much lower yield on better quality bonds, suggesting they are losing confidence in lesser quality issues, and by extension lesser quality stocks. Conversely, a rising indicator is a sign that investors are willing to tolerate greater risk, and thus are more confident overall. Currently 70.7 previously 69.9, has risen from record lows set in December 2008, but has been falling over the last year.

52 Barron's Confidence Index M52

53 Crisis of Confidence and Uncertainty Where s the trust? People don t trust politicians: People don t trust the media Banks don t trust banks: TED Spread JPM toxic assets! Banks don t trust people to pay back loans: 1 in 32 qualify for mortgages. Even with record low rates. Mtg originations declining and New Home Sales too! People don t trust banks: Confidence has fallen from 46% in 2000 to 20% in 2013.

54 Déjà vu: Are the dark days really behind us? Prices for risk-sharing Mortgage-Backed Securities (MBS) offered by Fannie Mae and Freddie Mac, the villain of the financial crises, are soaring! Record Margin Debit Stock Market Cap as % of GDP Baltic Dry Index is dropping back to the levels reached in Jan Retail investor is back! Oh my Housing and Unemployment tango High unemployment among yr. olds. A lot of young people are still living in parents home. Not becoming first-time buyers. Not even renting! Therefore, less demand for new construction Declining mortgage originations. Record prices.

55 Unemployment U3 vs U6 Pulses pg M54 U3 (Official Unemployment Rate) Currently 6.3%; StdDeviation says it should be closer to 7. The participation rate debate. Who really is leaving the workforce? U6 (U3 + Marginal (want to work) + Discouraged (Stopped looking) + Part-timers) Currently 12.2% Mind the Gap! Widest since U6 was created in Suppose to converge in a recovery! And does it even have value? Regionalism Household Survey

56 Unemployment U3 vs U6 Pulses pg M54

57 Unemployment Continued Pulses pg M54 What is the newest methodology making headlines? Yes you can find it in Barron s! (Pulses of Economy table on M54.)

58 Who s fooling who? Employment-Population Ratio (Pulses pg M54) Labor market is stuck in the mud. Why? Employment-to-population ratio vs. Unemployment rate The ratio is a better measure of proportion of workers that are working as opposed to not working. And reflects the overall lack of job creation. It is the ratio of the Total Working Age of the Labor Force currently employed divided by the Total Working Age Population The headline Unemployment rate always stirs the debate of whether it changed because more people were actually working or dropped out of labor force. Participation Rate Debate Prime Workers leaving!! Employment-to-population ratio eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers that are actually working. And helps explain why the U6 is stubbornly high. Over the past 3 decades it has been an inverse relationship. Currently Unemployment has been falling for the past 4 years. While ETP is flat. Permanent Damage

59 Who s fooling who? Employment-Population Ratio cont (Pulses pg 54)

60 Canaries in the Coal Mine? Retail Investors are back Oh my! Buy High Sell Low 3.7% avg return annually past 30 yrs. S&P 500 was 11.1% Stock Buy Backs: Will they Bite Back? Buy High Sell Low déjà vu 2007 Baltic Dry Index dropping (-54% ytd) back to the levels reached in Jan Suggest weakness around the globe Europe negative interest rates on Bank Reserves? Mini-Stimulus in China

61 Barron s Statistics Online New Market Data Center Parity between BOL /print Free Market Tools Stock & Funds Futures Options Annuities address peter.miller@barrons.com