Just another cronyistic politician!
Less is better!
Markets remain under distribution. Rallies are sold off on an intraday basis. The NDX was really weak on Monday. Breakouts have been failing like the NY Knicks basketball team. Loads of external negative news from around the globe. A crash in energy prices is now being seen as more negative than positive as many currencies around the globe are being wrecked. The Ruble will soon need the paddles.
There is not much to do right now except to manage positions and wait for the market to turn. One would think with extreme oversold conditions, a holiday rally/bounce will ensue. But so far…nothing doing.
We have told you for quite a while that the biggest bubble in history is the bond market. Central banks have spent trillions to keep rates down. To their credit, it has worked. But the final outcome? Remember, all bubbles eventually pop…and they pop when everyone is on one side of the trade. We are already seeing a small pop of the bubble in junk bonds as yield and price have been distorted for the past few years.
This is a warning shot on another area. We have mentioned this before but have now dug deeper. But a disclaimer first. WE DO NOT KNOW WHEN THINGS END. BUT WE WILL BE ON WATCH FOR WHEN THEY END. We are talking BIOTECH. We are not talking about the Amgens or Biogens. We are talking about the lovely investment banking community that in their infinite wisdom has brought approximately 124 BIOTECH companies public in the past 2-3 years…with that number ramping up in the past year. This by itself is no biggie but digging deeper is a biggie. But first: Back in 98-99, as the bull matured, investment banks hurriedly brought a ton of internet names public. Many of them were suspect. Many were money losers. Some had no sales. They were able to bring these suspect companies public because the sector was hot and the public bought it. Remember, if there is demand, it will be supplied. Some of these companies doubled on the open and went up 5 and 10-fold. Of course, we know the final outcome. When things ultimately turn, the curtains come down. Many of those names are either gone or trading for pennies.
Fast forward to today. The hottest sector is the Biotechs. Many IPOs are coming public at $15…$25…and so on. The common denominator is most are opening strong. Some are doubling…some are tripling…some are even up more than that. But…ok, let’s capitalize it…BUT there is one huge issue. MOST OF THESE IPOs HAVE NO SALES. We did not say no earnings. We said NO SALES. A handful have a small amount of sales. All have massive losses. A quick glance of the total market cap of all these names is approximately $55-60 billion. Yes…$55-60 billion dollars of market cap with hardly any sales and a ton of losses.
We have no clue when the music stops. We just know that from the study of history of the markets, the music will eventually stop…and when it does, it will not be pretty. We are not telling you to buy, sell or hold. In fact, they can continue higher and we may just see a few buyouts. Yes…buyouts of companies with no sales is also a characteristic of bubbles. This is just a word to the wise as fear and greed look and act the same in every bull and bear market. Bubbles suck you in and then spit you out. Do not be the last one in. For now, the music is still playing.
As far as the markets, they are deteriorating more and more. We continue to scratch our head at the outlier move in energy and currencies around the globe. These are not normal moves and worry the central banks-induced markets from around the globe are now seeing blowback of silly policy. We are not sure this is good news at the end of the day. But short term, markets are becoming beyond oversold as we head into the Fed meeting and the supposed holiday bias. Yippee!
Forget the fact that Feinstein, Pelosi and many other Dems on committees knew about enhanced techniques on terrorists. Forget the argument on whether enhanced techniques were right or wrong. Forget the utter hypocrisy on capturing terrorists and then using enhanced interrogation techniques equals bad but blowing the terrorists up with hellfire missiles along with the collateral damage is good. Forget the ignoring of America’s security in releasing this report. Forget that the report should have been an op-ed piece in the NY Times. Forget that they did not interview anyone with a different opinion. The real story is the media…the all of a sudden breathless media which are going nuts over 10 year old news. The bottom line is that if this report was about the Obama administration, the national media would have never reported it. We repeat, if this was Mr. Obama, this would have been buried.
The spending bill…we repeat, when it comes to spending, there are no Democrats and there are no Republicans…there are just spenders. That’s how you get to $18 trillion of debt. One is worse than the other.
And the market.
We remain bearish on the long list of areas we have been reporting to you. This includes:
Oil & Gas
Yen and Euro
Commodity countries- Russia, Brazil…
Gold stocks- though we are now neutral on the metal
Small caps vs large caps
We are also less than thrilled about the failed breakouts in the big financials that occurred this past week. As you know, we put a lot of weight on this area. Besides that, there remains a good list of areas still working…but word to the wise, they are now in pullback mode with some pulling back harshly. This includes:
But…and we have a few big buts. We remain very worried about central bank-induced bubbles. We have been telling you for a long time about the price and yield distortion of the bond market, most notably the junk bond market. Junk bonds are now getting smoked. We also believe a lot of this crash in Energy is also central bank-induced as currencies are all over the map which in turn affects price. We just don’t believe all these wicked moves are healthy and have to be cognizant of markets joining the ugly. The market teased the ugly into October but was saved by Europe, Japan and China with more money printing and more easing. We do not want to be long when the market starts to ignore these maniacs. This past week’s action was nothing but distribution and now must be watched. We continue to see major weakness in the small caps…and you can now add the NYSE to the ugly party. Mid caps are also suspect.
Near term, markets are already oversold with seasonal bias ahead. Bounces are due but damage is being done!
We came into yesterday thinking a pullback was at hand. At 10 am, we were not so sure. But the reversal and this morning’s open simply tells us things are getting a little tougher in and around these levels. To be brief, pullbacks are a normal part of the process. They don’t have to lead to anything nefarious. But as markets get distributed, we watch closely to see if things worsen. As of now, normal…of course unless you are in the commodity complex…that amazingly, has found no respite in its recent carnage.
The good news is every 10 cent drop in gas prices is $10 billion not spent on energy…totalling about $100 billion right now…and that is just the consumer. Weekend report up next.
Yesterday’s action showed markets are now in pullback mode. Recent highs could not be taken out with sellers now overtaking buyers. The worst areas are being crushed while the best areas are now pulling back. Shorter-term support levels have been taken out but again, just a pullback right now. Pullbacks are a normal course of business in the market. But…half the market remains bearish with some areas very bearish. This report continues to tell you to avoid:
ENERGY/OIL & GAS- This is self-explanatory as the meltdown continues. Keep in mind, bounces are due at any time but as we said before, they will be random and would not change the major trend.
STEEL, COPPER, ALUMINUM and all that stuff.
COMMODITY COUNTRIES…BRAZIL, RUSSIA…
RAILS…which have recently topped…some worse than others.
HIGH YIELD BONDS- We have told you the most Fed-induced distorted market was junk bonds…and since June…nothing but downside. Much of that has to to with the energy complex but this down move has affected most. Price and yield are still out of whack…even at these levels.
YEN and EURO…though very due for a bounce.
SMALL CAPS…but we are quite aware of the potential for the “January effect” in where small caps outperform. Watch to see if the Russell 2000 can break above 1192 and then more importantly, 1213.
We wanted to add one other note as we have told you that markets were extended to the upside while at the same time, a big dose of bullishness showed up. On top of this, we are back to seeing a ton of secondaries being issued. Remember, this is more supply on the market and does not happen at bottoms. Something for the file manager.
Keep in mind, there is still plenty that is working…just now in pullback mode.