What's in Store for the S&P500?

Tudor Sees First Global Monetary Policy Divergence Since 2010

Tudor sees first global monetary policy divergence since 2010

Bloomberg News

January 21, 2014

Tudor Investment, the $13.7 billion macro hedge-fund firm run by Paul Tudor Jones, said global central bank policies will diverge this year for the first time since 2010. 

Tudor anticipates the U.S. and U.K. will raise interest rates earlier than expected, while rates will be cut in the euro area this year, according to a Jan. 15 weekly note to investors written by five members of the firm's research team. 

"We believe that 2014 will be a year of contrasts when it comes to the outlook for monetary policy across the major developed markets," Filippo Altissimo, global head of research at Tudor, and four colleagues wrote in the note. "For the first time since 2010, there will likely be an unfolding divergence in monetary policy." 

Betting against Canadian interest rates, as opposed to those in the U.S., may offer "better risk-reward" amid positive economic activity in both countries, according to the note. The Greenwich-based firm is finding near-term value in wagering against U.K. fixed income, "especially around unemployment releases," as it expects the country's rates to rise, while betting on European monetary union debt. 

Macro funds, which wager on macroeconomic trends by buying and selling stocks, bonds, currencies and commodities, have struggled to beat other strategies since 2010 as managers such as Louis Moore Bacon cited central bank action as a factor distorting markets. Funds in the strategy on average returned a cumulative 4 percent in the past four years, while those across all strategies climbed 15 percent, according to data compiled by Bloomberg. 

Fund returns

The Tudor BVI Global fund climbed 14 percent last year, a person familiar with the matter said, and 6.3 percent in 2012. 

Tudor expects an increase in the federal funds target rate, now at a range of zero to 0.25 percent, in the summer of 2015, according to the note. Economists anticipate the gauge will rise to 0.5 percent at the end of that year's third quarter, according to the median forecast of 59 people in a Bloomberg survey. 

An improving U.S. economy is underpinning inflation, limiting firings and lifting consumers' moods, brightening the outlook for growth at the start of 2014. Policy makers began reducing monthly bond purchases by $10 billion in January to $75 billion, citing an improving job market. Still, Federal Reserve Bank of Chicago President Charles Evans, who has supported record stimulus, said Jan. 15 that the central bank's slowdown should be seen as a shift in emphasis toward keeping interest rates near zero for a longer time, partly because of still-low price pressures. 

Inflation may be the spark persuading the Bank of England to raise rates in the fourth quarter, according to the Tudor note. Bank of England Governor Mark Carney will change forward guidance next month, according to economists, as they forecast that unemployment will hit a key level far earlier than previously anticipated. More than 60 percent of respondents to Bloomberg's monthly survey said Carney will refine the policy when the BOE publishes its quarterly Inflation Report on Feb. 12. Almost one-third of economists said the jobless rate will fall to 7 percent in the first half of the year, a juncture that will require Carney to consider raising borrowing costs. 

New Zealand may increase interest rates in March because of "robust business surveys, rapid house price appreciation, strong output growth prospects and a surge in terms of trade," according to the Tudor note. Reserve Bank of New Zealand Governor Graeme Wheeler last month abandoned his earlier stance that policy tightening could wait, saying interest rates may need to rise to 4.75 percent by the first quarter of 2016 from a record-low 2.5 percent. 

Tudor anticipates a Norway rate increase in the second half of the year. 

 

Millionaire Smallcap & Microcap Traders Speaking Panel

Technical Analysis - MACD

Cramer's Game Plan for Week of January 19, 2014

What Five Days of Trading Tell Us About 2014

What Five Days of Trading Tell Us About 2014
By Jim O’Neill Jan 14, 2014 
Bloomberg

Over the course of more than three decades in finance, I got into the habit each January of developing investment themes for the coming year. Some habits are hard to break, and even though investment strategy is no longer my day job, my mind has turned to the same task. Usually I come to a pretty strong view, one way or the other, about the year ahead. This year, things don’t look so clear.

To begin with, there’s an odd little thing called the five-day rule -- an unlikely guide, you’ll think, but one I came to value as an aid to confidence. The rule simply states that when the main U.S. stock-market indexes show a combined positive return after the first five days of trading, the year as a whole is very likely to be a good one; if the return after the first five days is negative, it’s a coin-toss whether the market will be up or down for the year.

Usually, stocks rise in the first five days -- as you’d expect, because over the long term they return about 8 percent to 9 percent a year. This year they didn’t rise, despite the consensus among market analysts that 2014 is going to be a good year.

Jose Ursua, a former colleague of mine at Goldman Sachs, has run these numbers all the way back to 1928. He finds that when stocks rallied during the first five days, there was a 75.4 percent chance of a rally for the year. For the period since 1950, the probability rises to 82.9 percent. Few rules in finance are as unambiguous as that. So when the first five days has been net positive for the Standard and Poor’s -- and I’m feeling bullish in any case -- I’m especially confident.

This year I’m still feeling pretty bullish, but the five-day rule is against me. U.S. stocks fell 0.5 percent -- nothing drastic, but down nonetheless. Over the whole period since 1928, a negative start implies a 47.8 percent chance of a negative year; since 1950, the figure’s about the same, 46.4 percent. In both cases, call it 50-50.

As I say, I’m in the bullish camp for the world economy in 2014. I’m expecting gains in the so-called developed economies and in a number of so-called emerging economies -- including some of my old friends the BRICs (Brazil, Russia, India, China) and some of my newer ones in the MINTs (Mexico, Indonesia, Nigeria and Turkey). I think there’s a decent chance that world gross domestic product growth will exceed 4 percent this year. And that would be good news for financial markets -- right?

Not necessarily. Stronger growth in the U.S. and other developed countries would be bad news for bond markets. In the future, they can’t depend on the Federal Reserve to press down so hard on interest rates with quantitative easing. Expect more “taper tantrums” in 2014. This could be quite a challenge not just for bond markets but also for financial markets more generally. I say this even though I think Janet Yellen’s Fed will go out of its way to pursue “dovish tapering,” in the hope of avoiding a 1994-type bond-market rout.
Here’s another complication. The U.S. trade deficit just dropped to its lowest since 2009, consistent with a current-account deficit of about 2 percent of GDP. This news was too little noticed: It shows that the post-crisis U.S. will be a different and better-balanced economy, refuting the idea that the U.S. would inevitably face a widening external deficit when it started to grow again.

But there’s a downside. A narrower external deficit could imply a diminished supply of global saving, and upward pressure on inflation-adjusted interest rates. You could see this, and even welcome it, as a necessary transition to more normal conditions -- but it adds to my concern about investments that might not get along with normalcy.

On top of all this, investors start 2014 with a perennial concern about the major currencies. Most seem to think the dollar is the least exposed -- for the reasons just mentioned -- and I go along with that. But I’m not as confident in this view as I’d like to be, partly because U.S. policy makers won’t want the dollar to rise too much.

A lot will depend on whether other economic leaders can step forward to support global activity as the U.S. strengthens. China, Germany, India and others are possible candidates. I’m convinced that a new and healthier Chinese economy is emerging. If others join in that assessment, the mood of global investors will lift appreciably. But will Germany act decisively on fears of euro-area deflation? Will India elect a government that can make effective decisions and turn that country’s vast potential into reality?

In all three cases, improvements in the credibility of economic policy could deliver excellent results both at home and in global terms. Those improvements are certainly achievable. I’d like to say I’m sure they will happen -- but hopeful is the best I can do. Happy New Year.

H&R Block (HRB) - Play on the Tax Season

12 days Before Christmas My Boss Said To Me.....

12 days before Christmas my boss said to me 
HITC Business


On the first day of Christmas,
my boss said I'm key
So he's got a great bonus for me.

On the second day of Christmas,
my boss winked at me
Two regulators a-probing,
But there's still a great bonus for me.

On the third day of Christmas,
my boss said to me
Three staff a-resigning,
Two regulators a-probing,
But there's still a very decent bonus for me.

On the fourth day of Christmas,
my boss said to me
Four subpoenas arriving,
Three staff a-resigning,
Two regulators a-probing,
And there's still a decent bonus for me.

On the fifth day of Christmas,
my boss said to me
Five Goldman stings,
Four subpoenas arriving,
Three staff a-resigning,
Two regulators a-probing,
And there's probably a decent bonus for me.

On the sixth day of Christmas,
my boss said to me
Six board members a-praying,
Five Goldman stings,
Four subpoenas arriving,
Three staff a-resigning,
Two regulators a-probing,
And there might be a decent bonus for me.

On the seventh day of Christmas,
my boss said to me
Seven clients a-suing,
Six board members a-praying,
Five Goldman stings,
Four subpoenas arriving
Three staff a-resigning,
Two regulators a-probing,
So there might not be a decent bonus for me.

On the eighth day of Christmas,
my boss said to me
Eight Feds a-raiding,
Seven clients a-suing,
Six board members a-praying,
Five Goldman stings,
Four subpoenas arriving
Three staff a-resigning,
Two regulators a-probing,
So there's probably not a decent bonus for me.

On the ninth day of Christmas,
my boss said to me
Nine shareholders a-complaining,
Eight Feds a-raiding,
Seven clients a-suing,
Six board members a-praying,
Five Goldman stings,
Four subpoenas arriving
Three staff a-resigning,
Two regulators a-probing,
So there's hardly any bonus for me.

On the tenth day of Christmas,
my boss said to me
Ten traders arrested,
Nine lawmakers a-complaining,
Eight Feds a-raiding,
Seven clients a-suing,
Six board members praying,
Five Goldman stings,
Four subpoenas arriving
Three staff a-resigning,
Two regulators a-probing,
So there's probably not much bonus for me.

On the eleventh day of Christmas,
my boss said to me
Eleven lawyers a-worrying,
Ten traders arrested,
Nine lawmakers a-complaining,
Eight Feds a-raiding,
Seven clients a-suing,
Six board members a-praying,
Five Goldman stings,
Four subpoenas arriving
Three staff a-resigning,
Two regulators a-probing,
And there's probably no bonus for me.

On the twelfth day of Christmas,
my boss said to me
Twelve jurors a-deciding,
Eleven lawyers a-worrying,
Ten traders arrested,
Nine lawmakers a-complaining,
Eight Feds a-raiding,
Seven clients a-suing,
Six board members a-praying,
Five Goldman stings,
Four subpoenas arriving
Three staff a-resigning,
Two regulators a-probing....
Now there's no bloody bonus for me!

And the very next day, my boss got fired.

Did This Guy (David Tepper of Appaloosa) Moved the Market Yesterday?

Time to Short SPY?

No one can dispute the fact that the S&P500 has had an amazing run since November 2012. Once the President and the Congress signed a deal to avert the Fiscal Cliff at the beginning of this year, investors have piled into US equities. Any weakness have been bought notwithstanding macro or corporate news.

SPY, the S&P500 ETF, is now at the top end of its channel and looks tired. Case in point, yesterday's price action. What should have been a good news for equities - April retail sales beating estimates handily and the ensuing sell-off in bond - did not end up being so - S&P500 managed to eke out a small gain. Moreover, the gains came from defensive sectors rather than cyclical names.

Bottom line, it looks like equities are in search of marginal buyers to drive them higher. Sure the big trend is still up, with the S&P500 breaking above its 2000 and 2007 highs, but looks like we are heading into  a short-term consolidation. I would short SPY at these levels with a very tight stop loss.

Corn Crop Planting At Third Slowest Pace in Three Decades

Corn Crop Planting At Third Slowest Pace in Three Decades
CNBC, 13-May-13
By: Patti Domm

Less than a third of the corn crop in key planting states is in the ground, the third lowest level for this time of year since 1980.

The U.S. Department of Agriculture Monday reported that 28 percent of the expected corn crop has been planted, and in key farm belt states, like Iowa and Illinois, the levels are even lower.

"Obviously, we have significant problems," said Rich Nelson, director of research at Allendale. "The trade after this week will begin dropping by both acreage and yield expectations. That's the message right here."

The cold, wet spring has wreaked havoc with farmers' efforts to plant, but even so, analysts and the government still expect a bumper crop. <Click Here for More>

Did China "Cook" the April Trade Data?

Program Videos From Milken Institute 2013 Global Conference

Cramer's Game Plan for Week of April 29

Fortune Interviews StatWiz Nate Silver

Can people use data or analytics to accurately predict the stock market in any way?
The problem is the stock market is this whole contest where you're competing against other creators. So the question is: Are there some traders that are better than others? I think the answer is probably, Yes. I'm not a pure markets guy, I played poker long enough which I think has parallel skills to trading in many respects where you know that some people are better over the long-term and better at accounting for uncertainty and so forth. But there's a lot of volatility and a lot of luck where a market cycle can last for months or years. There are a lot of perverse incentives that get in the way. So while I think there are some good traders, in the near term, even over a period of five or 10 years, it will mostly be dictated by luck, so it's tricky.

Have you ever applied your model to dating?
I did one little analysis with OkCupid for a New York Times Magazine piece a couple of years ago where we were trying to figure out the best night of the week to go out and get laid basically. So OkCupid collected the data of some status reports of people who were out and about using their mobile application. And we looked at the ratio of people who wanted a long-term relationship vs. people who wanted just something for [that night]. On Wednesday apparently you get the highest ratio of people who are just looking for something quick and dirty. <Click Here for More>

Vexing Over the VIX

I am a short-term bear on the US market. Given the performance thus far, there is more downside than upside. Case in point, the S&P500 is up 9% YTD. At this clip, the S&P500 will be up over 36% for the year. This will occur on the back of 13.41% gain in 2012. Inconceivable as the Sicilian from Princess Bride would say. If the US and the global economy were roaring like in the pre-2008 era, it would be conceivable but they are not. The US economy will barely grow at 2% (vs 4%+ pre-2008). Global GDP will be lucky to pull in 3.3% (vs 5%+ in the heydays) growth rate given the obvious slowdown in BRIC countries.

One of the measures of investor sentiment is VIX. Using range of out of the money call and put options, the CBOE estimates the likely movement in the S&P500 index over 1 month period. Today VIX is at 13.36, meaning that the options market forecasts the S&P500 to move 3.86% in the next 30 days (13.36%/√12). That is not a lot considering that the S&P500 can move that amount in couple of sessions. There are VIX future contracts (Bloomberg: UXJ3) where investors bet on the future path of VIX. The VIX future for the end of November is 19.40 suggesting that the investors expect volatility to increase as we head into the dog days of summer.

My hunch is that the S&P500 will test 1,500 in the next month or so. That's not an outlandish prediction because it is just 3.35% from current level and entirely within the range implied by current VIX.

Todays Reads - Cyprus, Bill Gross, Robert Shiller

Today's Reads
Interesting readings from today

Cyprus is the new epicenter of the European financial crisis. In return for Eu10 billion bailout, the EU imposed 9.9% tax on deposits greater than Eu100K and 6.7% on less than that amount. If approved by the parliament (vote postponed), this is will raise Eu6 billion. This is quite an unprecedented move and will likely impact market tomorrow especially given that everyone is looking for an excuse to sell. Forbes even compares this to Lehman debacle. Note that banking system in Cyprus is 8x larger than the economy, so bailing them out is bailing out foreigners especially the Russians, not a politically palatable solution for Euro politicians.

Pimco's Bill Gross, in his March think piece "Rational Temperance" attempts to answer somewhat un-answerable question, when would we know when there is irrational asset bubble. My view is that you don't. But he does make an interesting point in that HY debt market is a better indicator than equity market because it is set by institutional investors or better informed people. Basically says look at the issuance, which is inversely correlated with future returns, that'll give you the probability of irrational bubble - currently 6/10 in his view and moving higher.

One of the points Bill Gross makes is that he found the close relationship between HY spread and equity interesting. Duh! That comes directly from Black-Shoals option pricing model. Basically, equity and debt are joined at the hip; no wonder they act in a similar fashion.

Talking about market peaks, Prof Robert Shiller attempts to put that in perspective in a NYT oped, Yes, We’re Confident, but Who Knows Why. His answer to whether we are in a stock market peak now is typical of an academic, we don't know. He uses two measures to take the gauge of the market (1) valuation confidence i.e. % of institutional investors and individual investors who think market is not overvalued (2) cyclically adjusted price-earnings ratio (CAPE), which is real, or inflation-adjusted, Standard & Poor’s 500 index divided by a 10-year average of real S.& P. earnings. Currently, both confidence and CAPE are at relatively high levels but based on 2000 and 2007 experiences, they don't tell anything about the future.

The Big Short War on Herbalife

The Big Short War
Vanity Fair, April 2013
By William D. Cohan

Hedge-fund titan Bill Ackman has vowed to bring down Herbalife, the 33-year-old nutritional-supplement company, which he views as a pyramid scheme. With his massive shorting of Herbalife stock, the price plummeted, prompting two fellow billionaires—Ackman’s former friend Dan Loeb and activist investor Carl Icahn—to take the opposing bet on Herbalife. As the public brawl rivets Wall Street, William D. Cohan learns why, this time, it’s personal.

The supremely confident billionaire hedge-fund manager Bill Ackman has never been afraid to bet the farm that he’s right.

In 1984, when he was a junior at Horace Greeley High School, in affluent Chappaqua, New York, he wagered his father $2,000 that he would score a perfect 800 on the verbal section of the S.A.T. The gamble was everything Ackman had saved up from his Bar Mitzvah gift money and his allowance for doing household chores. “I was a little bit of a cocky kid,” he admits, with uncharacteristic understatement.

Tall, athletic, handsome with cerulean eyes, he was the kind of hyper-ambitious kid other kids loved to hate and just the type to make a big wager with no margin for error. But on the night before the S.A.T., his father took pity on him and canceled the bet. “I would’ve lost it,” Ackman concedes. He got a 780 on the verbal and a 750 on the math. “One wrong on the verbal, three wrong on the math,” he muses. “I’m still convinced some of the questions were wrong.” <Click Here for More>


Icahn verus Ackman (25-Jan-2013)

Google-Apple Valuation Gap Widest Since 2005 on Ads

Google-Apple Valuation Gap Widest Since 2005 on Ads

Bloomberg, 6-Mar-13

By Brian Womack

Google Inc. (GOOG)’s prospects haven’t looked so promising to investors relative to Apple Inc. (AAPL) since before the iPhone was introduced.

Google’s shares, which climbed to a record yesterday, are now trading at 25 times profit, compared with a price-to- earnings ratio of less than 10 for Apple, according to data compiled by Bloomberg. That gap is at its widest since June 2005, two years before competition between the two companies in mobile devices began to intensify.

Investors are willing to pay more for each dollar of Google’s earnings relative to Apple amid optimism that Google, with more than 40 percent of the U.S. online-advertising market, will command even more of the $37.3 billion that businesses spend each year to reach Web audiences. Google also has used an alliance with Samsung Electronics Co. (005930) to gain share in mobile software, feeding the competitive threat weighing on Apple as investors await the next big product from the iPhone maker.

“There’s only one company benefiting from all the growth areas of the Internet -- be it video, mobile, local, social, display advertising,” said Sameet Sinha, an analyst at B Riley & Co. “Apple has just done well in devices, nothing else.”

Google fell less than 1 percent to $831.38 in New York, while Apple declined 1.3 percent to $425.66. Google’s U.S. shares have added 35 percent in the past 12 months. Apple has dropped 20 percent in the same period, though its market capitalization is still more than $100 billion higher than Google’s. Apple remains the world’s most-valuable company, followed by Exxon Mobil Corp. (XOM) and Google. <Click Here for More>

Interview with Jeremy Siegel

Though stock market volatility continues to rattle investors' nerves, the future looks bright for equities in the U.S. and many emerging markets, according to Wharton finance professor Jeremy Siegel. That's not so for bonds, which could become money-losing investments as rising interest rates drive bond prices down. In an interview with Knowledge@Wharton, Siegel says that investors should think about reducing their bond holdings, buying more stocks and keeping just enough cash for a rainy day and other liquidity needs, since interest rates on cash are near zero. With the housing market -- so critical to the U.S. economy -- clearly improving, anyone who has held off buying a home should think about buying now while prices and mortgage rates are low, Siegel adds.