LISTEN NOW!   Free audio of The Jack B. Show available 24/7   
CALL NOW!   The Jack B. Show Hotline: 855.411.JACK
 
 

REMEMBER, IT’S A CORRECTION…NOT A BEAR MARKET!

One of the questions most asked of me is “Are we entering a bear market? I heard you were bearish!” As a diehard bull, I have said time and time again that we have entered a phase in the market in which factors were all converging to give overbought signals (this year’s target was S&P 1750). Let’s be clear! In an environment in which we lack pro growth policies, it becomes difficult to justify valuations when we start to see contraction of top line revenue growth from corporate America.

Market technicals are overbought!

Market fundamentals are overbought!

We are changing the guard at the FED in mid surgery. But the FED changed it all yesterday by reversing course on tapering asset purchases…But why? Unfortunately, as I have been on record saying, “There is NO way the FED can taper with economic conditions as they presently exist”. What Ben Bernanke was saying, in essence, is that the economy is too slow to start tapering! But something feels wrong about this upward movement in stocks. We went from managing an investment portfolio from an undervalued view to one in which we view the market as fully priced. The easy money is behind us and any move higher from here takes the market into overvalued territory short term. So what do we do?

Remember that we are at our target area so take some profit off the table between 1700 and 1750 S&P. It’s been a fun ride, right? We could see a blow off high at quarter end next week as portfolio managers chase returns. The last break in equities which I thought would give us a 10% pullback only managed to give roughly 6% back before bullish factors forced short covering. Look for the correction again!

But a correction is not a ‘bear’ market. On the contrary…The correction allows savvy investors a chance to add wisely to positions as the market hits it’s frenzied bottom (yet to come), and is able to pick the gold off the ground! The correction within a bull market does many things but most important, it brings fear back into the market. That is why buying protection at 12% volatility and now buying protection again at 13 % volatility was and still is the sound move. Now is the time to maintain that protection and keep the powder dry. The smart traders and investors will buy the market when others are selling and sell when others are buying.

Friends, we are still in a long term bull market. Short term bottoms are made when the market looks the worst and unfortunately our work tells us the worst is yet to come. That being said that: Corporate America is healthier than ever before. Cap Ex will have to pick up because of creative destruction. The US is still viewed as the best of the worst. And as my old mentor and Noble Laureate the late, great Merton Miller said to me, “An occasional liberal in the White House won’t destroy the American entrepreneurial spirit! Think of it as the ‘Gates of Opportunity’ opening up!” The fact is that the move in the market multiple back to the historic norm of 16 from the 11 to 12 region must be digested properly…A 10% to 15% correction would still be perfect! Stay alert!!!

Now if I can only get this concern about changing FED leadership out of my mind…..Hmmmm!

Gold Price Recovery: A Good Sign?

For many people, gold is considered as the traditional safe haven in times of financial turmoil. During the first half of this year, the price of gold went down. But the corner had been turned this July, when gold’s price climbed strongly and brought the total gains of the said month to around 10pc.

If you can still remember, the price of gold peaked in autumn of 2011 reaching almost $1900 per ounce. The following year, its price fluctuated between $1600 and $1800 before starting a sharp decline from October 2012. In June 2013, the price of this precious metal fell below $1200. Although its price has increased this month, climbing more than 3pc a day, it is still below $1500.

Most of the gold mining companies plunged far further than the gold’s price. The decline in the price of gold had a direct impact on British investors in popular commodity funds which hold mining company shares like BlackRock Gold and General, JPM Natural Resources and Junior Gold. These three well-known gold fund resources have dropped in terms of cost over the past 12 months by 51pc, 25pc and 11pc respectively.

Aside from the fall of the gold price, miners were also hit by rising energy costs and wages. Investors fear that the price of gold will never rise as it was before. For those who have invested in gold bullion, they saw light in the recent decline of gold prices. It opened opportunities in buying this precious yellow metal from companies that offer such services. If you invest in gold at BullionVault, you can see how much the price for this commodity have fallen and grab this opportunity of buying gold at a cheaper price. These companies offer their clients with the benefit of selling, buying and storing gold. They also provide private gold investors with an access to the professional bullion market around the world.

SOYBEANS AND DOLLAR INDEX

Jack explains why we should watch soybeans, and in doing so, keep an eye on the dollar index. He also touches on the importance of a back-up plan in the wake of Nasdaq’s “flash freeze” yesterday.

www.openmarkets.com

Larry Kudlow Show – Aug 3, 2013

Jack joins Kieth McCullough on the Larry Kudlow Show where they discuss ObamaCare, Tax reform and what’s happening in the Fed.

Click here to listen to this podcast.

A Cautionary Tale

Roughly a year ago I found myself on Larry Kudlow’s show defending a bullish position in US Equities and a bearish position on bonds. The S&P was under 1300 and the 10 year note had a yield under 1.6%.  I said we could see the S&P get to the 1700 level (maybe 1750) and the 10 year would get over 2.5%. A gutsy call considering the dysfunction out of Washington and fears about a European breakup. My thesis was simple:  Failure was, and is, no option for the Europeans: The contraction in the multiple to earnings was a direct result of the lack of pro-growth policies coming out of DC. The fixed income market was a parking spot for the capital which would eventually be reallocated back into riskier assets, namely stocks. But the market realized something after the last election…President Obama is now a lame duck.  It’s one of the main reasons why we have seen an expansion of the multiple back to the norm. Rates have moved back up comfortably and Europe surprised everyone!  However we now have a problem…The market has become fairly priced.

One of the other important variables I watch is the notional value of the stock market verses that of our entire GDP. Except for two times, equities have historically traded at a discount to GDP for the last 50 years. Unfortunately, both times were followed by a serious correction. The time has come to say that the ‘easy’ money in equities might be behind us unless we see real growth in the GDP numbers and forecasts increase for top line revenue from corporate America over the net couple years.

I had a mentor, Dr. Bing Sung, from Harvard who told me one day we could see a paradigm shift in the pricing of equities to GDP as a direct result of the winning of the ideological cold war. Could this be it? Since we are more Global in nature, should we be looking at GNP which encompasses revenue abroad and is a much higher number? The market has tried to invert that relationship twice unsuccessfully in the last 15 years. Could the third time be the charm?  I honestly don’t know the answer to these questions.

I do know that we have caught an amazing run in stocks and the time to be very careful is upon us.  For the past few years I have preached that pullbacks in the market should be used as buying opportunities until further notice…Well, I’m giving you notice.  Should one sell out? No!  We could potentially still see the market make highs for years to come.  Use insurance in the form of options to defend your positions.

With the VIX at levels which make buying premium digestible, it makes sense to incorporate a put strategy into your investment portfolio for the near future.  Remember, if there was ever a time that history has taught us to be careful…This is it!  There is an old saying from the floor of the exchange which I was made to memorize as a young trader, “There are Bulls, Bears and Pigs…Pigs get slaughtered!”

One more side note:  Don’t look for any tapering until Q1 of 2014 after Bernanke steps down. Incidentally, the last two times we have changed a Fed chairman, the stock market experienced major corrections.  Hopefully the third time will be the charm and we can shake off that fear!

 

Fed Likely to Taper Stimulus in Q1

Market’s ‘Taper-Tntrum’

Episode 361

Jack discusses the still excellent background for the equities, yet is keen to explore near term activity. Rohr International’s Alan Rohrbach discusses the Macro-Technical view on how that relates to Bernanke-inspired weak activity in the bond market as the real key. They also explore China, commodities and a quick view on the Gold.

Click here to listen to this podcast.

Episode 360

Aaron Reinglass joins Jack today and they ask the question, ‘How can Bernanke leave in the middle of his experiment?’

Click here to listen to this podcast.

Episode 359

On today’s show, David Nealis visits and the discuss the retail trading environment in China.

Click here to listen to this podcast.