Killer Bunny

If Anyone's Interested

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Volatility looks to be making a near term low. If thats the case then typically we shall see a price correction over coming 2 weeks or so. That would take us into early-mid May & could well be followed with a further wave of rising volatility a month or so later, which, by (un)happy coincidence takes us into the Brexit vote.

#foolcast

Bingo bongo. All is right with the world.

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Still looks like a sentiment driven cascading price dislocation. Similar to 1987 & August 2011. It doesnt look (yet) like a 2000-2003 or 2007-2009 bear market even though most of the media/commentariat are obsessing over that.

Once the volatility recedes we should be targetting the breakdown area on the upside. So around 6500-6650 on the FTSE. Then well see where were at. Ultimately I still see new highs above 7100 possibly targetting 8000+ in this bull market.

http://stockcharts.com/freecharts/pnf.php?c=%24FTSE,PWTADANRNO[PA][D][F1!3!!!2!20]

Spot on. 9 months in a row closed above 24/8 low. 100% +ve outcome on FTSE & SPX.

FTSE

http://stockcharts.com/h-sc/ui?s=%24FTSE&p=D&yr=1&mn=0&dy=0&id=p95104547928

SPX

http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=1&mn=0&dy=0&id=p16813848788

I much prefer evidence to ill-informed shouty opinion

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http://www.marketwatch.com/story/why-the-nasdaqs-latest-bear-market-signal-has-no-bite-2016-05-03?mod=mw_share_twitter#:swb9LL1-6VWTqA

The answer comes from a fascinating new study by Vincent Deluard, an investment strategist at Ned Davis Research. He unearthed a number of statistical biases in previous studies which had concluded that the 200-day moving average has a stellar long-term record.

The biggest of those biases, Deluard told me in an interview, came from researchers implicitly assuming that investors in the early part of the last century knew what we know now — a statistical no-no that goes by the name of “look-ahead bias” or “backtesting bias.”

Deluard explains: “Investors could not have achieved the long-term gains that these previous studies report because, until recently, they would not have known that the 200-day moving average was the ‘optimal’ length for a moving average. For example, from the 1960s to the 1990s, investors would have concluded that a 100-day moving average was a better trading rule, based on the data that was then available to them. The 200-day moving average only became the ‘optimal’ moving average in the 1990s, and will likely be replaced with another ‘optimal’ trading rule in a couple of decades.”

The 200-day moving average has a disappointing record

After correcting for this and other biases, Deluard concluded that the 200-day moving average’s only real value is in sidestepping severe, multi-year declines — which are rare. The 2008-2009 bear market was one, but before that you have to go back to the 1970s to find another.

In the case of more-common but less-severe bear markets, the 200-day moving average has a disappointing record. It often ends up getting you out of stocks at close to the bottom, just when you should be increasing rather than decreasing your equity exposure.

Edited by R K

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#Foolcast ALERT

We could be just days away now from a near-term peak & another volatility event/price dislocation in equity markets of the type seen in August 2015 and January 2016.

Not advice/DYOR

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#Foolcast ALERT

We could be just days away now from a near-term peak & another volatility event/price dislocation in equity markets of the type seen in August 2015 and January 2016.

Not advice/DYOR

Agreed. Opportunities for another sharp move down here, deffo.

Liquidity conditions were as good as it gets mid April to mid May but US Treasury borrowing has now returned draining cash from dealer/investor accounts. Capital flight from Europe and China could still hold things up but both of these regions look distinctly sickly right now. Margin calls at home would tie down a lot of that cash and leave US markets sucking wind.

Edited by zugzwang

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CSI 300 futures flash crash

http://www.bloomberg.com/news/articles/2016-05-31/one-minute-plunge-sends-chinese-stock-futures-down-by-10-limit

Chinese stock-index futures plunged by the daily limit before snapping back in less than a minute, the second sudden swing to rattle traders this month.

Contracts on the CSI 300 Index dropped as much as 10 percent at 10:42 a.m. local time, recovering almost all of the losses in the same minute. More than 1,500 June contracts changed hands in that period, the most all day, according to data compiled by Bloomberg. The China Financial Futures Exchange is investigating the tumble, said people familiar with the matter, who asked not to be named because they aren’t authorized to speak publicly.

“Liquidity in the market is really thin at the moment,” Fang Shisheng, Shanghai-based vice general manager at Orient Securities Futures Co., said by phone. “So the market will very likely see big swings if a big order comes in. The order looks like it’s from a hedger.”

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Spot on. 9 months in a row closed above 24/8 low. 100% +ve outcome on FTSE & SPX.

FTSE

http://stockcharts.com/h-sc/ui?s=%24FTSE&p=D&yr=1&mn=0&dy=0&id=p95104547928

SPX

http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=1&mn=0&dy=0&id=p16813848788

I much prefer evidence to ill-informed shouty opinion

Now 10 months in a row

and (fwiw) 2nd monthly close above 200ma (3rd for SPX). Last august panic low prices start to drop out of 200ma soon too.

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rate of return of a dynamic “constant maturity strategy” maintaining a fixed duration on a Barclays Capital U.S. Aggregate portfolio now yielding 2.17%, will almost assuredly return between 1.5% and 2.9% over the next 10 years, even if yields double or drop to 0% at period’s end. The bond market’s 7.5% 40-year historical return is just that – history. In order to duplicate that number, yields would have to drop to -17%! Tickets to Mars, anyone?

The case for stocks is more complicated of course with different possibilities for growth, P/E ratios and potential government support in the form of “Hail Mary” QE’s now employed in Japan, China, and elsewhere. Equities though, reside on the same planet Earth and are correlated significantly to the return on bonds. Add a historical 3% “equity premium” to GMO’s hypothesis on bonds if you dare, and you get to a range of 4.5% to 5.9% over the next 10 years, and believe me, those forecasts require a foghorn warning given current market and economic distortions. Capitalism has entered a new era in this post-Lehman period due to unimaginable monetary policies and negative structural transitions that pose risk to growth forecasts and the historical linear upward slope of productivity.

Here’s my thesis in more compact form: For over 40 years, asset returns and alpha generation from penthouse investment managers have been materially aided by declines in interest rates, trade globalization, and an enormous expansion of credit – that is debt. Those trends are coming to an end if only because in some cases they can go no further. Those historic returns have been a function of leverage and the capture of “carry”, producing attractive income and capital gains. A repeat performance is not only unlikely, it is impossible unless you are a friend of Elon Musk and you’ve got the gumption to blast off for Mars. Planet Earth does not offer such opportunities.

“Carry” in almost all forms is compressed and offers more risk than potential return. I will be specific:

  • Duration is unquestionably at risk in negative yielding markets. A minus 25 basis point yield on a 5-year German Bund produces nothing but losses five years from now. A 45 basis point yield on a 30-year JGB offers a current “carry” of only 40 basis points per year for a near 30-year durational risk. That’s a Sharpe ratio of .015 at best, and if interest rates move up by just 2 basis points, an investor loses her entire annual income. Even 10-year U.S. Treasuries with a 125 basis point “carry” relative to current money market rates represent similar durational headwinds. Maturity extension in order to capture “carry” is hardly worth the risk
  • Similarly, credit risk or credit “carry” offers little reward relative to potential losses. Without getting too detailed, the advantage offered by holding a 5-year investment grade corporate bond over the next 12 months is a mere 25 basis points. The IG CDX credit curve offers a spread of 75 basis points for a 5-year commitment but its expected return over the next 12 months is only 25 basis points. An investor can only earn more if the forward credit curve – much like the yield curve – is not realized.
  • Volatility. Carry can be earned by selling volatility in many areas. Any investment longer or less creditworthy than a 90-day Treasury Bill sells volatility whether a portfolio manager realizes it or not. Much like the “VIX®”, the Treasury “Move Index” is at a near historic low, meaning there is little to be gained by selling outright volatility or other forms in duration and credit space.
  • Liquidity. Spreads for illiquid investments have tightened to historical lows. Liquidity can be measured in the Treasury market by spreads between “off the run” and “on the run” issues – a spread that is nearly nonexistent, meaning there is no “carry” associated with less liquid Treasury bonds. Similar evidence exists with corporate CDS compared to their less liquid cash counterparts. You can observe it as well in the “discounts” to NAV or Net Asset Value in closed-end funds. They are historically tight, indicating very little “carry” for assuming a relatively illiquid position.

The “fact of the matter” – to use a politician’s phrase – is that “carry” in any form appears to be very low relative to risk. The same thing goes with stocks and real estate or any asset that has a P/E, cap rate, or is tied to present value by the discounting of future cash flows. To occupy the investment market’s future “penthouse”, today’s portfolio managers – as well as their clients, must begin to look in another direction. Returns will be low, risk will be high and at some point the “Intelligent Investor” must decide that we are in a new era with conditions that demand a different approach. Negative durations? Voiding or shorting corporate credit? Buying instead of selling volatility? Staying liquid with large amounts of cash? These are all potential “negative” carry positions that at some point may capture capital gains or at a minimum preserve principal. But because an investor must eat something as the appropriate reversal approaches, the current penthouse room service menu of positive carry alternatives must still be carefully scrutinized to avoid starvation. That means accepting some positive carry assets with the least amount of risk. Sometime soon though, as inappropriate monetary policies and structural headwinds take their toll, those delicious “carry rich and greasy” French fries will turn cold and rather quickly get tossed into the garbage can. Bon Appetit!

Bill Gross - emphasis mine.

https://www.janus.com/bill-gross-investment-outlook?utm_campaign=Bill%20Gross%20Feb%20IO&utm_medium=social%20&utm_source=twitter&utm_content=Bill_Gross_Feb

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#Foolcast ALERT

We could be just days away now from a near-term peak & another volatility event/price dislocation in equity markets of the type seen in August 2015 and January 2016.

Not advice/DYOR

Another tiresomely correct foolcast.

I'm starting to annoy even myself now. No wonder KillerBunny, "Wealth Manager", is in meltdown.

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Gavyn Davies @gavyndavies

Everyone is terrified of the productivity crisis- except equity investors. Why hasn't it caused a bear market (yet)? http://on.ft.com/1ZKJOQy

Warning on market reaction to equity market props being revalued (i.e. effect of rising unit labour cost on corp profits, FED reaction to it, impact on discount rate, dividends etc)

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#Foolcast ALERT

We could be just days away now from a near-term peak & another volatility event/price dislocation in equity markets of the type seen in August 2015 and January 2016.

Not advice/DYOR

And there we have it in quite spectacular style!

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Volatility looks to be making a near term low. If thats the case then typically we shall see a price correction over coming 2 weeks or so. That would take us into early-mid May & could well be followed with a further wave of rising volatility a month or so later, which, by (un)happy coincidence takes us into the Brexit vote.

#foolcast

And lo it came to pass....

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