The SPHB:SPLV ratio chart is showing a compelling setup for small cap stocks. The SPHB:SPLV ratio chart tracks high volatility (high beta with tendency to be small cap) stocks to low volatility (tendency to be large cap) stocks. This ratio chart is another barometer for the risk on versus risk off trade.
In a risk on market, higher growth and higher beta stocks are the name of the game. Investors go on the offense for maximum profits and their less concerned about the economy and a recession. In a risk off market, investors go on defense and move into safer and more stable (low volatility) large cap stocks.
SPHB:SPLV Ratio Chart
The market has consolidated a little over the last week and that was the swing long signal we were waiting for. Notice that SPHB:SPLV has broken through resistance at 0.8050 and now is pulling back to retest that level. This is a classic set up we can trade. If the 0.8050 level holds, it means previous resistance has become support and we can take a beautiful entry off that level (green arrow). Make sure to review this lesson on trading for beginners so that you know which stocks to screen for to take advantage of a turn in the SPHB:SPLV chart.
Jim Rogers recently claimed that he was expecting the worst market crash in modern times to hit within the next two years. Mainstream and alternative news sites are acting as if what Jim said is really alarming. It's not.
Jim Rogers said the next time we have an economic problem in the US it’s going to be the worst of our lifetime.
Jim's logic is that the world has been printing a lot of money and the whole world has a lot of debt. In 2008, we had a problem caused by too much debt, but now the debt is much larger than it was in 2008, so the next time we have a problem, it’s going to be even bigger than 2008.
The 74- year-old investor also repeatedly stressed that the crash was “going to be worst in your lifetime.”
Rogers said we've had financial problems in America every four to seven years, since the beginning of the republic. Well, it's been over eight since the last one. This is the longest or second-longest in recorded history, so it's coming.
According to the 2014 book Excess Returns, in Rogers’ years as a professional investor, he beat the market by an average of around 30% per year.
Jim Rogers Doom Predictions Are Nothing New
The mainstream media and even alternative news sites like to hype Jim Rogers' predictions as something alarming but one graphic really destroys that logic:
Being early is the same thing as being wrong. Had you listened to Jim back in 2011, you would have gotten killed shorting the market and you would have missed out on one of the greatest bull-market runs in stock market history. As Rogers has aged, he's really destroyed his reputation as a market forecaster with his perma-bear view that the world is going to hell in a hand-basket.
Autonomous driving is dumb. In my surveys of asking family members and friends, there's a whole ZERO percent interest in autonomous self-driving cars.
Most Americans don't even want a chip on a credit card let alone a car that drives itself.
Technology companies think they are smarter than consumers. Tech companies believe that once they wow us with the reality of self-driving cars, we're all just going to go out and buy one like a bunch of sheep, sheep led to the slaughter like this guy.
Josh Brown, a Navy Seal who served on Seal Team 6 (the unit that killed Osama Bin Laden), died from autonomous driving technology.
Tech gone wrong is tech that develops without much concern for producing what the public wants. Reality check: the average person doesn't care about autonomous driving and believes it's downright dangerous.
How are autonomous cars going to respond to an ambulance racing through an intersection? What about an electrical component on a circuit board in the autonomous driving car going out? Are you going to have about 2 seconds to grab the wheel to take control before a crash occurs?
Capitalism sometimes gets out of whack where you have greedy geniuses running around trying to force the public on a ‘fantastic' new technology. Remember the tech wearables market that was supposed to explode higher? The only thing it did was implode. Intel is laying off a major portion of its wearables group.
Technology bloggers like to write about new technologies like autonomous driving cars. Mainstream media groups like to report on autonomous driving cars because it's something interesting that people like to read about in horror and fascination. But where the rubber meets the road is what consumers want. In all the self-driving car hype, I see little evidence that consumers are willing to spend thousands of more dollars on a self-driving car.
I see billions of dollars being spent on autonomous driving technology and I see tepid consumer interest at best. That's a dangerous combination for investors, and I think we could see the autonomous driving car fad die out after tech companies finally realize that most of the public doesn't trust or want self-driving cars.
Most government revenue comes from the taxation of transactions and labor. Taxes impact both the supply and demand curves. Taxes cause a buyer to pay more for something and suppliers to receive less. The loss of value for both buyers and sellers is called the deadweight loss of taxation. Taxation has an enormous impact on the economy and thus stock market. Traders and investors need to understand the effects that taxation has on the economy and thus stock market. We will examine deadweight loss from a microeconomics perspective, ending with a macroeconomics viewpoint.
Fed's Eric Rosengren was clear in his speech early Friday that rates need to be raised. Mr. Rosengren said that if we don't raise rates soon, we could crash the economy. Mr. Rosengren said, “A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”
Fed's Kaplan (Dallas Fed) spoke about the need to raise rates very slowly but said that the Fed “has put markets on notice.”
Atlanta Federal Reserve chief Dennis Lockhart said on Monday, September 12, 2016, that a “serious discussion” of a rate increase was needed. Lockhart said, “I believe the economy is sustaining sufficient momentum to substantially achieve monetary policy objectives in an acceptable medium-term time horizon.”
Not only do banks need rates to move up as they have suffered for years under low-interest rates, but inflation is also coming on strong.
Jeffrey Gundlach of DoubleLine said last week, “This is a big, big moment.” The bond investor warned his peers that interest rates are ready to rise from their historically low levels and asset managers need to be “defensive.” Quartz writes…
Gundlach said investors should reduce duration in their portfolios, move money into cash and buy protection against volatility before rates rise and inflation picks up.
Gundlach uses the recent jump in the ECRI (index of leading indicators) to suggest that we are about to see more inflation in the US.
The ECRI US leading index continues to rise so the market should be pricing in higher inflation and therefore higher interest rates.
Consumer credit confirms an overheating market and the likelihood that inflation will explode higher. Consumer credit as a percentage of GDP is exploding higher to levels never seen before.
The second-biggest US mall owner General Growth Properties defaulted last month when a $144 million loan on a property came due. The default by General Growth Properties could be a sign of troubles to come.
[graphiq id=”koC9fbUh0X3″ title=”General Growth Properties Inc. (GGP)” width=”440″ height=”553″ url=”https://w.graphiq.com/w/koC9fbUh0X3″ link=”http://listings.findthecompany.com/l/31679019/General-Growth-Properties-Inc-in-Chicago-IL” link_text=”General Growth Properties Inc. (GGP) | FindTheCompany” ]
A staggering $47.5 billion of loans backed by retail properties are set to mature over the next 18 months.
Fewer people are shopping in malls and instead chasing cheaper bargains online. Massive job cuts are planned across the retail sector as a result of slumping sales. We have poor earnings forecasts from retailers like Macy’s and Nordstrom, plus bankruptcy filings by chains such as Aeropostale and Sports Authority. With big retailers in a slump, how commercial property owners will have enough money to make their mortgage payments is a mystery.
Insurance companies and banks that are eager to issue loans on high-end shopping complexes aren’t as willing to take a chance on a shaky mall. That pushes borrowers toward Wall Street firms that underwrite loans to sell to investors as commercial-mortgage-backed securities.
Investors that hold mortgage-backed securities could be in for bad times ahead unless the Federal Reserve comes to the rescue and starts buying toxic commercial-mortgage-backed securities.
In a sign of how bad things are for commercial mortgages, the U.S. Small Business Administration (SBA) has recently announced the restart of the SBA “504” loan refinance program. The program expired in 2012 after refinancing more than $5 billion in small business commercial mortgages following the Great Recession. No, I'm not making this up. An emergency finance program that was last used during the Great Recession just started up again on June 24, 2016!
The way a 504 loan works is that the lender finances 50% of a transaction while an SBA-approved Certified Development Company finances 40%, and the borrower is required to pay a 10% down payment.
Starwood Capital Group is planning to dump $1.2 billion worth of properties while they still can.
Many commercial landlords are choosing to walk away and stick the lender with the property. The message is clear: lenders beware. If a mall is not accretive to the REIT, they just walk away from it.
REIT Investors Have No Clue That Something Wicked Is Coming
REIT investors have no clue that loan defaults are coming at them full speed ahead. Worse, REIT investors have no clue that a flat or inverted yield curve will crash REIT markets.
Below is a chart showing all time popularity of REITs as investors pile in. I overlayed the yield curve in early 2007. Notice how a flat or inverted yield curve crashed REITs because REITs borrow money short term, loan it out long term, and make profits off the spread.
The current yield curve is normal but it's flattening quickly as REITs profit margins are squeezed.