In today's investment world which is teeming with bullish participants there's at least one group who is leery of all the feverish buying: company insiders. Insiders are selling 50% more intensely than they were at the December 2019 peak and at triple the rate at the February  top in stocks. Like the Commercials in … Continue reading Get Me Out!
The stock market has demonstrated longer-term secular bull and bear cycles. Secular cycles are periods with a common trend. In the stock market, these secular cycles are driven by trends in the P/E ratio. This chart presents the secular stock market ycles since 1900, based upon analysis of P/E ratios, inflation, and other factors. The … Continue reading Secular Cycles
Paper Abstract: "We propose that large stock market crashes are analogous to critical points studied in statistical physics with log-periodic correction to scaling. We extend our previous renormalization group model of stock market prices prior to and after crashes [D. Sornette et al., J.Phys.l France 6, 167, 1996] by including the first non-linear correction. This … Continue reading Large Financial Crashes
One of the signs that you have entered into a mania phase is when people have trouble absorbing non-conforming information. "Confirmation bias" is a psychological behavior where individuals disregard any information which conflicts with their current beliefs. While that bias has always been problematic for investors, in recent years, it has worsened. There are currently … Continue reading Signs of delusion and madness
In 1949, investing legend Benjamin Graham eloquently characterized the cyclical nature of financial markets in his book "The Intelligent Investor":"The market is a pendulum that forever swings between unsustainable optimism and unjustified pessimism. " Normally, social mood waxes and wanes positively and negatively. Thus, sentiment waxes and wanes in the form of dynamic cycles. Mood … Continue reading Sentiment points to an imminent trend reversal in US stocks
The U.S. stock market is very concentrated. There were a few months where the top internet stocks underperformed, but that ended in January. Alphabet's (GOOG) (NASDAQ:GOOGL) massive gain after reporting earnings punctuated the move. Alphabet stock is up about 40% in the past 6 months. The recent gains in these stocks have led to a … Continue reading Concentrated risk
A state of excess credit in the economy is the precondition of debt-deflation. There has to have been an inflation of debt before it can deflate. The chart below shows the level of U.S. non-financial corporate debt as a percentage of gross domestic product (GDP). Back in 1951 it hovered around 22%, but has increased … Continue reading Could debt deflation be just around the corner?
Unfortunately, the Greater Recession led to a L-shaped recovery which may lead to a "Greater Depression" later in this decade owing to seven risky trends. The first trend concerns deficits and their corollary risks: debts and defaults. The policy response to the Covid-19 crisis entails a massive increase in fiscal deficits at a time when … Continue reading The trends that will lead us
If Value stocks are extremely cheap versus the market, it is necessarily the case that Growth stocks are very expensive. In absolute terms, that is even more true, given that the overall market is trading at elevated valuations relative to history. This chart shows the median price/sales of the Growth half of the U.S. stock … Continue reading Growth stocks are more overvalued as they were in the 2000 bubble
A buildup of an unsustainable amount of debt generally precedes devastating deflationary episodes. The last brush the world had with deflation was the 2007-2009 financial crisis, which was accompanied by a huge amount of bad debt in the mortgage market. That financial crisis was the most severe since the Great Depression of the early 1930s, … Continue reading Tipping point
The U.S. nonfarm payrolls for January came in with a gain of 49,000. Revisions to earlier months showed a decline for both November and December by a total of 159 thousand. Government payrolls rose 43 thousand vs. private payrolls up 6 thousand. Education workers grew. The unemployment rate (U3), however, fell to 6.3%, well below … Continue reading Employment points to an L shaped recovery for most
If you are a student of market history, you know GameStop is simply another manifestation of something that occurs time and again in cycles.Charles Dow found that primary uptrends in the stock market had three phases: accumulation, participation and distribution. The accumulation phase occurs at the very start of a bull market when, as Dow … Continue reading The market is topping
Many can recall the speculative fervor that attended dot.com mania in 1999-2000 which largely involved options. Options trading is back and in a big way. This is from a Jan. 30 Marketwatch article with the subheadline: "Individual investors pile into out-of-the-money calls seeking "lottery"-type wins." As shown on the bottom two graphs on this chart, … Continue reading ’99 – ’00 redux
On January 15 the CBOE Volatility Index (VIX) met a trendline for the fourth time in the past 2h months. A solid close beyond the trendline would signal that the VIX is ready to move higher…and stocks move lower. That "solid close" occurred on January 27. Last week's spike in the VIX was the largest … Continue reading The VIX sends a signal
The 4% GDP headline masks the reality that output is still off 2.46% from a year ago and GDP is only 0.96% higher since the 3rd quarter.Output is obviously being held back because of the quantity and quality of work available. According to the December jobs report, the number of long-term unemployed—meaning without a job … Continue reading The real economic reality