SPY

Bond Issuance Has Ground to a Halt; Expect Negative 2016 GDP Impact

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The Fed is in a tight spot. We give Ben Bernanke and team a lot of credit for successfully delaying a prolonged global economic recession following the worst financial crisis of our generation late last decade, one that swallowed up such household names as GM (GM) and AIG (AIG), but such policies always come with unintended consequences. New Fed Chair Janet Yellen may have to deal with the true aftermath, and it’s been thrust upon her, perhaps unfairly. With interest rates on fixed-income products near the lowest they’ve been in history, retirees and near-retirees, after suffering significant capital losses during the Financial Crisis, have been lured into higher-yielding dividend-paying equities, the prices of some almost completely supported by debt-infused dividend … Read more

Batten Down the Hatches – Another US Market Crash Probable

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A global financial contagion like that of the Financial Crisis just six short years ago cannot be ruled out. The magnitude of wealth lost in China’s (FXI) equity market is simply staggering, and we’re already witnessing bad loans soar across China’s Big 4 banks. We’re hearing that property, used as collateral for stock margin trading in China, is often being sold for 90 cents on the dollar as speculators look to cover losses. We expect the fallout from the collapse in Chinese equity markets to eventually reverberate through their property markets, impacting loan-to-values in the commercial and residential arenas, sparking significant loss rates and asset write-downs across the Chinese financial system. We continue to assess the tangible evidence of an … Read more

3 Observations

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Bulls raged back in a big way during the week of trading ending August 28 to erase some of the massive losses experienced from the May 2015 highs of 2,013 on the S&P 500. Though no longer staring down at 1,800, the S&P 500 still closed comfortably shy of 2,000. No matter what next week will bring, almost everybody is expecting more volatility. Could this then mean that we’re back to normal? The market has a very interesting way of disappointing the majority of investors the majority of the time. Here are 3 observations that are worth noting. 1. The Fed Doesn’t Have the Right Data…Yet The stark reality is one of two things: a) either the Fed knows exactly what’s going on … Read more

The Damage Has Already Been Done

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The Shanghai Index only fell another 1.3% yesterday. The US markets are cheering at the open Wednesday on hopes that last month’s July durable goods number is foretelling of what investors can expect after the latest leg down in the Chinese market and the collapse in US equity markets the past few weeks. Though “core” July durable goods orders were better than expected, pre-collapse data is no longer indicative of the true state of the US economy and what lies ahead, in our view. The Chinese government has gone “all-in” to prop up its bubbly market, one that is trading at 60 times reported earnings, but the impact, while arguably successful in preventing Armageddon in China for now, has only … Read more

The Nelson Tweet

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The following is what Mr. Nelson wrote at ~6:30am this morning in advance of the day’s trading. Open up 600, finish lower on China fears? — Brian Nelson, CFA (@ValuentumBrian) August 25, 2015

China Eases to Support Country’s Stock Bubble; US Markets Cheer Behavior?

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Roughly $4.5 trillion has evaporated from the Chinese markets (FXI) since the middle of June – real, tangible wealth that no longer exists. Equities on mainland Chinese exchanges still trade at a median reported earnings multiple of 60+ times, according to Bloomberg. After direct government intervention in the country’s markets failed, China has now moved to cut interest rates and reduce bank reserve requirements, and this somehow has the US markets cheering. Does such irrational behavior by US investors finally mark the peak? Here are 5 observations worth noting. 1. The Financial and Capital Markets are Fragile If the Financial Crisis of 2008-2009 taught this generation anything, it was a lesson in the fragility of the financial and capital markets … Read more

The Debt Bubble Is Deflating; Will It Pop?

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The fundamental concerns surrounding the financial health of China-dependent companies across the globe are tangible, and the risk of a currency crisis and eventual credit crunch are real, if they aren’t already happening. Fortescue Metals Group (FMG), the fourth-largest iron ore producer in the world, announced over the weekend, that profits were nearly completely wiped out (down nearly 90%) for the fiscal year ending June 30, even as the firm shipped 33% more tons of iron ore during the period over last year’s mark. The largest iron ore producers, BHP Billiton (BHP) and Rio Tinto (RIO), are only adding to production overcapacity, conditions that are wreaking havoc on the commodity price. Iron ore prices are to remain under pressure as … Read more

The Dow Crashes 531 Points

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Missed Vauentum’s pre-crash commentary? See here. Memories of the Financial Crisis are still vivid in our mind. The framed front pages of the Wall Street Journal reporting the demise of Lehman, AIG and WaMu on those fateful days in 2008 drape the walls of the Valuentum office as a stark reminder of the fragility of the financial and capital markets. We’re not alone. Many investors remember seeing their savings cut to pieces at the depth of Financial Crisis. The Dow Jones Industrial Average (DIA), in collapsing 531 points Friday, has captured those same individuals’ attention…again. They haven’t forgotten the pain of the years of the credit crunch when they wondered whether they’d ever be able to retire during the dreadful … Read more

The Flight to Safety

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Image Source: Pravine Chester It’s no secret that investors have been disappointed with returns across the equity market in 2015, and this week has not made the unrest any easier to deal with. Money managers across the globe will be looking at a short-term chart of the S&P 500 (SPY), observing that the broad US index has finally broken down from a critical multi-month base, and many will look to “lighten up” on some of their equity positions that they have been reluctantly “letting run” for months. It is no surprise to us why Netflix (NFLX) was one of the market’s worst performers in Thursday’s trading session. The company is trading at nearly 500 times earnings (not a typo), and the low … Read more

The “Fully Invested” Argument May Only Make Sense…

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…if stock market indices always go up over the long haul. Speaking the obvious… We often receive questions from new members about why we have such large (30%+) cash positions in both newsletter portfolios. Some believe it to be a mistake because they have been taught that “timing the market” and/or assessing overall market valuations is a fool’s errand. For most all investors, it is generally accepted that staying “fully-invested” is a good idea. But let’s take the recent example of Warren Buffett’s Berkshire Hathaway (BRK.A) buying Precision Castparts (PCP). The latter is certainly not a new company, having been around since the late 1940s, and Buffett has admittedly known about the metal bender for some time. So, then, why … Read more