How Much Damage To Stocks From Taper Fears? Dec 6 2013, 06:42
Good News, Bad News
Markets can get somewhat confused when the economy begins to strengthen. ~~ On one hand, economic growth is Good for Earnings. ~~~On the other hand, an improving economy increases the odds of a Fed stimulus Reduction announcement. Thursday's GDP report hit the market with a "is this good news or bad news" dilemma. From Bloomberg:
The U.S. economy expanded in the third quarter at a faster pace than initially reported, led by the biggest increase in inventories since early 1998. Gross domestic product climbed at a 3.6 percent annualized rate, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012.
Investment Implications: Taper vs. Growth
As we noted on December 4, it is more likely the Fed tapers at a slower-than-expected rate vs. tapering at a faster-than-expected rate. The Fed-speak Thursday aligns with that theory. From Reuters: Expectations that the Fed might start tapering this month were dampened after Dennis Lockhart, the president of the Federal Reserve Bank of Atlanta, said the GDP data "doesn't make a trend and … doesn't drive me to the conclusion that we've had a breakout in terms of growth."
It is only a matter of time before Quantitative Easing III ends hence it does not matter if the Fed does not start tapering in September because the uncertainty will continue to loom on October and beyond. Such uncertainties are very bad for the stock market in the long run.
Markets hate uncertainty because it is difficult to plan ahead with uncertainties abound. - Dr Chan Yan Chong
The Time To Be Bearish Is When Breadth Is Weak, Which Clearly Isn't Now By Ryan Puplava, Dec 5 2013, 15:24
Perhaps my favorite tool for measuring strength is breadth, which simply measures the percentage of constituents advancing or declining within a group or index. You can apply it to any financial market or economic series to gauge how robust an advance is.
(1) During a BULL market or Economic Expansion you would expect breadth to be very strong where the Bulk of stocks are rallying and the bulk of the country is showing Economic Growth. (2) During a RECESSION you would expect the opposite: the Bulk of stocks are in their own private bear markets and various segments of the economy are CONTRACTING. Not only does BREADTH ~~ reveal whether you have a bearish or bullish backdrop ~~~ but it can also help in Spotting Turning Points for when the stock market is transitioning from a bull to a bear market or when the economy is slipping from expansion to contraction (recession). So, what does breadth reveal about the stock market and economy right now? Stock Market Breadth When the market becomes split with only half the stocks above and the other half below (see chart below), this is a warning sign that the market may be close to a peak. Currently, market breadth is Very Strong with over 80% of stocks in long-term upward trends and does NOT indicate a top is in the process of being formed.
Economic Breadth One of my favorite measures of economic breadth are the coincident and leading state indexes that the Philadelphia Fed conducts. Rather than measure national economic activity, they measure each state's own economic activity, which allows us to measure economic breadth across all 50 states. ~~ In robust expansions the bulk of states should be witnessing economic growth ~~~ and during recessions we expect the opposite. As you can see below, More than 92% of the 50 states in the US are experiencing Economic Growth and the risk of a recession is quite remote.
Typically when a recession (shown by the red bars) begins only half of the states are growing and so with the current reading of 92%, we can be fairly confident the economy will continue to expand into 2014.
What is also encouraging is that the Philly Fed's State leading Index is comfortably above the 1% growth level, indicated by the number of "green" states below.
==> Typically, we see a continued decline in each state prior to the onset of a recession and then a dip below 0% when a recession begins.
The fact that we are not declining and well above the 0% level is encouraging and not surprising when92% of the country is experiencing economic growth. A simple glance below at a sea of green shows we have a ROBUST Recovery with a LOW probability of a recession.
There will come a time to be bearish, but I believe that time is clearly NOT Now. You have too many areas of the financial market and economy that are participating to the upside to suggest a bull market top or recession is looming on the horizon.
===> When we see fewer stocks in bullish trends and fewer states chugging along, that will be the time to turn toward wealth preservation rather than wealth maximization.
I will continue to monitor stock market breadth in my Friday "Market's Bill of Health" reports and will update readers on any significant changes in economic breadth indicators.
Extracted 2 of charts that may be good indicators to gauge the economy health as outlined by the author.
Baltic Dry Index is an indicator to monitor for recovery in shipping players like Yangzijiang, NOL, etc. 10 Charts To Watch In my view, market-based data are better indicators of what is going on beneath the economy's surface than official statistics. Market-based data are usually available in real-time, and they are derived from the interactions of millions of participants from all over the world - the wisdom of crowds distilled into one number. - They aren't seasonally adjusted, - and they aren't subject to revisions after the fact. But they do require some interpretation, so here is a collection of 10 market-based indicators that I'm paying attention to, and why. On balance, I think they all reveal a gradual improvement in the economic and financial fundamentals, but the persistence of a general aversion to risk.
The PE ratio of the S&P 500 is only slightly higher than its long-term average, despite the fact that Corporate Profits are at all-time Highs, both nominally and relative to GDP. This is another indicator that risk aversion persists and that equity valuations are still somewhat attractive.
The Baltic Dry Index measures the cost of shipping bulk commodities in the Asia/Pacific region.
It is a function of two major variables:
~~ the Supply of shipping capacity ~~~ and the Demand for shipping capacity.
Prices were depressed for most of the past several years because of a significant increase in shipping capacity. More recently they have rebounded rather strongly, presumably because economic activity is continuing to increase (e.g., Chinese demand for coal from Australia) while shipping capacity is relatively constrained. As such, this appears to be signaling a somewhat stronger global economy, which would in turn support a stronger U.S. and Eurozone outlook.
So many investing experts share their predictions. :-SWho will guess correctly? Better spend fruitful time concentrated on finding long-term value .
What Could Go Right In 2014
Jan. 2, 2014 8:54 AM ET
We are hearing all sorts of predictions and warnings about what could go wrong in 2014. Since so many things didn't go wrong this year, our antenna may be up and we may be more inclined to listen.
But how helpful have these warnings been in the past? Was it "right" to be fearful the U.S. and global economic recoveries would be slow and unsteady; that unemployment would still be as high as it is five years later; that unprecedented intervention by the Federal Reserve would put us in uncharted territory as far as inflation and currency risk?
Without question it's been "right" to be fearful - but was it right, in retrospect, to act upon your fears? There is fear that 2013 didn't bring any meaningful corrections - we must be "due" for one.
Maybe that is the very fear that will keep some investors sidelined, again, in 2014.
The taxi operator has secured six cornerstone investors for close to 40 per cent of the 168 million-share Global Offering.
SINGAPORE: Trans-cab, the second largest taxi operator in Singapore by fleet size on Tuesday (Nov 4) announced that it has lodged its preliminary prospectus with the Monetary Authority of Singapore and intends to list its shares on the Main Board of the Singapore Exchange Securities Trading Limited.
The Global Offering comprises 168 million shares. It has secured six cornerstone investors for 38.7 per cent of the Global Offering. They are Eastspring Investments (Singapore), FIL Investment Management (Hong Kong), Havenport Asset Management, JF Asset Management, Lion Global Investors and Maxi-Harvest Group.
DBS Bank has been appointed manager for the proposed listing.
Trans-cab, which started out a decade ago, has grown its fleet to 4,686 taxis with approximately 7,400 taxi drivers, including relief drivers, as of June. The company recorded a three-year compounded profit growth of approximately 22.2 per cent, from S$24.3 million for the financial year ended 31 December 2011 to S$36.3 million for the financial year ended 31 December 2013.