6/2/2014 7:00 PM ET|
Why all the correction calls have been wrong
Just about everyone on Wall Street has been bracing for a market pullback -- and that may have helped prevent it from coming true.
A lot of smart people have been calling for a market correction for an awfully long time. And all of them have been dead wrong.
Rather than make the expected sharp move lower, markets instead have inched their way to record highs. Stock gains have been unspectacular but they indeed have been steady, defying a plethora of predictions for drop of 10 percent -- or worse.
"If you started from the bottom of the market in March 2009 you could have run this story every 20 percent [the market has gone] up," said Art Hogan, chief market strategist at Wunderlich Securities. "There's been this [sentiment that] it's too far, too fast, the market's gotten ahead of itself, Wall Street's gotten ahead of Main Street, it's just the Fed -- all sorts of excuses."
For all the reasons why the market should correct -- or drop more than 10 percent, according to the traditional Wall Street definition -- there are just as many reasons why it shouldn't.
Though the Federal Reserve has eased back the throttle on its easing programs, it is still buying $45 billion in bonds a month, and it still seems probably a year or more away from raising short-term interest rates.
The economic recovery, mediocre as it is, continues despite the 1 percent first-quarter gross domestic product drop that is expected to reverse through the rest of the year. And while earnings are nothing to brag about either, S&P 500 companies did collectively increase profits by 3.35 percent in the first quarter -- again, nothing great, but at least positive.
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"What's actually happening in the marketplace is, like it or not, the movement in the market mirrors almost exactly the move in earnings growth," Hogan said. "If you look at how much the markets have gone up on a percentage basis, [earnings and the market are] almost identical or within a percentage point or two of each other."
It's a hard point to argue: That 3.35 percent earnings gain compares to a 3.9 percent increase on the S&P 500 ($INX). Yet the correction calls have continued, and they've not been from just the usual suspects.
Hedge fund titan David Tepper sent a tremor through the market two weeks ago when, at the SkyBridge Capital SALT conference in Las Vegas, he warned investors not to be "too fricking long" on stocks and later told CNBC he had slashed his equity exposure. Tepper has long been a market bull and even had a late-2010 rally named after him that came on the heels of statements he made during a CNBC interview.
Dennis Gartman, the widely followed author of "The Gartman Letter," recently had to walk back his correction call, and a host of other prominent market names have been incorrect as well.
It is in fact the crowded correction trade that has helped prevent it from coming true.
"You may be less apt to have the correction play out because so many people are protecting against it," said Todd Salamone, senior vice president of research at Schaeffer's Investment Research. "Those are the exact people who are less apt to sell on any sign of weakness because they have protection in place."
Indeed, Salamone noted huge levels of interest in calls options -- giving the holder the right to buy -- in the CBOE Volatility Index, a popular gauge of market fear. A rising VIX generally accompanies a falling market. With the VIX at record lows, investors have been able to purchase cheap protection against a market drop.
Simply stated, the exuberance and fearlessness that generally precedes market plunges is hard to find.
"Usually corrections and bear markets occur when investors and traders are least expecting them," Salamone said. "With all the technical signs that people are listing as cautionary -- when it becomes so popular and widespread and when everybody begins bracing for it, they become less reliable."
Besides, the market already has had a series of corrections, just not in the places people usually look -- the so called stealth corrections that also are a popular part of current market jargon.
A few examples: According to an analysis from Jeffrey Saut, chief market strategist at Raymond James, high-flyer momentum stocks on the S&P 500 are off more than 30 percent, the average stock in the Russell 3000 is off 15 percent from the most recent high, the average stock in the S&P 600 index of small-cap stocks is down nearly 19 percent, the average S&P 500 large-cap stock is off 9 percent, and the average stock in the blended S&P 1500 is off 14 percent from its 52-week high.
If, however, larger market damage remains limited, that will make fools of many prognosticators.
The market already has thwarted the smart-money trade espoused by many heading into 2014: short Treasurys, long small-caps and long the U.S. dollar-Japanese yen currency pair trade. Government bonds have surged amid $60 billion in fresh money to fixed-income mutual and exchange-traded funds, small caps have gotten crushed and the U.S. dollar has been weak.
"Once the smart money figures something out, the trade is over," Nicholas Colas, chief market strategist at ConvergEx, said in a note to clients. "I hear enough worry over U.S. stocks to make me think that the smart money is cautious. ETF money flows seem to confirm that sentiment. That caution may end up being right. But probably not just yet."
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Well if you go to the Doctor and he tells you are terminally ill, just because he predicts that you will die in 3 years but you die in Four hardly means he was wrong. Rest assured this Bull Market is Terminally ill, 3 Central Bankers alone printing to the Tune of nearly $10Trillion is more then enough proof of that.
Besides the Markets have already had some corrections internally, even your Bogus Article states that. When Gartman becomes Bearish, it usually a good bet to go just the opposite of that trade. When has he ever been Right. Tepper, right after his statement, basically told everyone to be Bullish, not Bearish. So neither of these two actually held any weight concerning the Markets.
Perma Bulls will be Bullish regardless of the actual Risks that exist within the Markets. They will be the Last folks to ever give any Legit Sell Signs. The Reason for that is always crystal clear, they make more Money by convincing more Folks to stay in as opposed to getting out.
Meanwhile the Insiders with Huge Holdings will be cashing OUT, daily, monthly and Yearly. They are getting out while at the same time telling everyone else to get in. It's like Musical Chairs, each round Wealth is taken away from the Majority and given away to the Minority. Soon there will be just One Chair Left, and the Revolution and Global fighting shall begin. Welcome to New, Old World Order.
"Why all the correction calls have been wrong"
The only reason this statement has any truth to it is there is (still) confidence. As long as the buyers believe then all will be well in the markets. We are on the precipice - we may teeter for awhile longer but it will only take a major event to send folks to the exit doors.
Some of us are old enough to know that what goes up - and keeps going up, does correct and come back to earth. I don't care that this market is acting differently than before. The underlying trouble is there is no real American manufacturing, industry or raw material production. There is way to many unemployed. The overall rate of associated costs of living to income is way to high (i.e. income = $1k/mo; expenses = $900). There is to much debt (individual, corporate and government) and we are functioning as an upside down pyramid. There is no bottom supporting the top.
There have been several "mini pullbacks" and corrections....
And by their own admission in the Article there are several Indices/indexes that are "down substantially"... So that in itself shows resets in some Sectors..
If the earnings are reflected in the S&P percentage gains that seems reasonable...
"S&P (company earnings) up about 3.4%....S&P index up about 3.9%.."
A slight difference, maybe because of "irrational exuberance.".....Love that term..!!
So if many of the big guys are calling, for a correction on a stretched out Market, they are probably involved in the "mass hysteria of their peers" and don't want to be left out or the "one that didn't call it" ?
It's easy to call for a downturn after or near a long term Bull Market, anyone can...
I'll do it right now, a Bearish downturn...And then call for an up trending Bull after that...
Maybe in a few months or a year or so, I CAN BE JUDGED AS A GURU...??
The Crock Market is kinda like being on a bus speeding toward a brick wall. some aboard are looking through the front window at the approaching wall saying: Yeah, this isn't good, we're heading toward, like, this really big wall. Everybody else aboard is saying: What??? You're crazy.....nothing has happened! Everything is fine. See? But, in the end, whether you believe there will be a 'correction' or whether you don't matters not at all; there WILL be a correction.
Because new mentality. I wish I realize about this. I missed the boat since 2010.
People are not selling because they say it came back and keeps going up after the crash. So the new mentality is just buy, and buy.
I kept my 401k through the crash until it recovered some back but then I got scared because my 401K portfolio manager company kept sending me letter about converting to IRA during my company file bankruptcy. Without reading while got sick after laid off, I got scare that I might have the same fate like the Enron's people, I converted it to IRA and it sit there in cash until now. Damn you The Principal Financial Group.
And almost all of them know no one can predict the near-term market direction, but they're con-artists enough to want to fool others into thinking they can so they can make commissions, etc. from it.
By Susanne Walker and Liz Capo McCormick
If the insatiable demand for bonds has upended the models you use to value them, you’re not alone. Just last month, researchers at the Federal Reserve Bank of New York retooled a gauge of relative yields on Treasuries, casting aside three decades of data that incorporated estimates for market rates from professional forecasters. Priya Misra, the head of U.S. rates strategy at Bank of America Corp., says a risk metric she’s relied on hasn’t worked since March.
After unprecedented stimulus by the Fed and other central banks made many traditional models useless, investors and analysts alike are having to reshape their understanding of cheap and expensive as the global market for bonds balloons to $100 trillion. With the world’s biggest economies struggling to grow and inflation nowhere in sight, catchphrases such as “new neutral” and “no normal” are gaining currency to describe a reality where bonds are rallying the most in a decade.
“The world’s gotten more complicated and it’s a little different,” James Evans, a New York-based money manager at Brown Brothers Harriman & Co., which oversees $30 billion, said in a telephone interview on May 30. “As far as predicting direction up and down, I don’t think they have much value,” referring to bond-market models used by forecasters.
If the economy had recovered and been doing fine interest rates would be back at 5-8 percent in order to inflate our debt away.
Instead the situation is just getting worse and worse. Now the Feds have to move $50 billion a month off balance sheet to offset the money they have removed from people being able to see it flowing into the economy. They are doing werid things under the table like fund billions of dollars to certain investors to buy up housing and try to rent out the houses at over priced rents.
These measures are merely making the difference between what it cost to live in the US and what companies are willing to pay people greater and greater. To buy a normal $300,000 house now and a $30,000 normal average car and the insurance to go with it and mandated health insurance you need an income of $150,000 at the very lease today. What are most of the jobs paying that have been created?? $7.50 an hour for 29 hours a week or about $10,000 a year.
Yep the situation is getting worse and worse on main street while the Federal Reserve pumps money into the housing and stock and bond markets to keep them going.
It is all going to fall apart and the dollar collapse Sept 15, 2015 folks.
by Halah Touryalai - in 1,249 Google+ circles
Mar 28, 2013 - These latest notional derivatives figures are really big and, in fact, they're ... I've been following the derivatives markets for almost two decades ... According to the same source, the total notional amount of derivatives held by ...
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