Weekend Reading: Interesting Diatribes

As expected, the market rallied from short-term support levels as the year-end rush to chase returns has started in full swing.To wit:

"With the markets NOW oversold, it will be critically important that support at 2020 is not broken. The next critical level of support is the short-term moving average (dashed blue line) at 2010, and then 1990 at previous support levels from early this year. It will be important for the market to hold these current levels of support without violating it over the next few trading days to set up a more tradeable short-term rally.

As shown in the chart below, the markets did not disappoint. Even with Japan slipping into its fifth recession in the last 5-years, despite massive infusions of capital, and the devastating attacks in Paris over the weekend, the market rallied strongly off of support as expected."

(Click on image to enlarge)

SP500-MarketUpdate-111915

"As we progress through the last two months of the year, historical tendencies suggest a bias to the upside. This is particularly the case given the weakness this past summer which has left many mutual and hedge funds trailing their benchmarks. The need to play "catch-up" will likely create a push into larger capitalization stocks as portfolios are "window dressed" for year-end reporting.

This traditional "Santa Claus" rally, however, does not guarantee the resumption of the ongoing "bull market" into 2016."

Importantly, while the "bias" of the market is to the upside, primarily due to the psychological momentum that "stocks are the only game in town," the mounting risks are clearly evident. From economic to earnings-related weakness, the "bullish underpinnings" are slowly being chipped away.

While the Federal Reserve (Fed)'s most recent statement acknowledged continuing concerns around international developments, it left the door open to a December rate hike. With a renewed prospect for monetary policy divergence between the Fed and other central banks is once again pushing the dollar higher.

Should the trend continue, a stronger dollar would represent a headwind for U.S. inflation, precious metals, and U.S. earnings growth, as discussed yesterday. Furthermore, a stronger dollar combined with a tightening of monetary policy will further impede earnings growth. The problem is that investors are overlooking this fact to their own peril

But, that is just my opinion. This weekend's reading list is a compilation of interesting diatribes, both bullish and bearish, on the markets, Fed and the economy.

On The Fed

Don't Fear Rate Hikes Or Rising Dollar by Anatole Kaletsky via Project Syndicate

“The US Federal Reserve is almost certain to start raising interest rates when the policy-setting Federal Open Markets Committee next meets, on December 16.

Under these conditions, the direct economic effects of the Fed's move should be minimal. It is hard to imagine many businesses, consumers, or homeowners changing their behavior because of a quarter-point change in short-term interest rates, especially if long-term rates hardly move."

Easy In, Hard Out David Merkel via Aleph Blog

"Ugh. The conclusions of my last two pieces were nuanced. This one is not. My main point is this: even with the great powers that a central bank has, the next tightening cycle has ample reason for large negative surprises, leading to a premature end of the tightening cycle, and more muddling thereafter, or possibly, some scenario that the Treasury and Fed can't control. Be ready, and take some risk off the table."

Did Goldman Sachs Find The Smoking Gun by Tyler Durden via ZeroHedge

"The staff attributed the lower long-run equilibrium rate to a slower rate of potential growth, a consequence of slower population growth and weak productivity growth. These comments might foreshadow another reduction in the median "longer-run" funds rate projection in the Summary of Economic Projections (SEP) in December.

Participants also noted that the lower long-run equilibrium rate implies that the near-zero effective lower bound could become binding more frequently. As a result, "several" participants indicated that it would be "prudent" to consider "options for providing additional monetary policy accommodation" should the economic recovery falter."

Gundlach - The Psychology Of A Rate Hike by Robert Huebscher via Advisor Perspectives

Gundlach - Fed Hike "No Go" A Real Possibility by Jennifer Ablan via Reuters

"'Certainly No-Go more likely than most people think. These markets are falling apart.' Los Angeles-based DoubleLine oversees $80 billion in assets under management.

Gundlach cited a number of asset classes that are signaling deteriorating conditions: The S&P Leveraged Loan Index, which is at a four-year low, the SPDR Barclays High Yield Bond Exchange-Traded Fund "very near a four-year low" and the CRB Commodity Index at a 13-year low. 'You also have the Eurozone doubling down on stimulus. Fed raising rates? Really?'"

(Click on image to enlarge)

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(Chart courtesy of ZeroHedge)

On The Markets

Something Strange Is Happening With Rates by Daniel Kruger, Liz McCormick via Bloomberg

Market Timing Is Back In The Hunt by Cliff Asness via Institutional Investor

"Market timing, considered by many an investing sin, can be a virtue if employed modestly, using a combination of contrarian and trend-following strategies."

A Pair Of Popular Stock Market Analogs? by Jesse Felder via The Felder Report

An Earnings Inflection Point by Sam Ro via Business Insider

"In a new note to clients, Morgan Stanley's Andrew Sheets writes that the trend in earnings growth is a 'key inflection' that he is watching.

'Are earnings rolling over? We don't think so. Earnings growth has been weak in the US, EM and Europe. Yet on our forecasts, 3Q15 should be the nadir in EPS trends, as the drag from the commodity sector subsides.'"

cotd-sp500-earnings-growth-trough

Without Buy Backs There Has Been NO EPS Growth by Bob Bryan via Business Insider

The Stock Market Enters Its Final Bull-Market Stage by Simon Maierhofer via MarketWatch

On The Economy

Models, Hemlines & Hamburgers As Economic Indicators by Sue Chang via MarketWatch

“Since ancient times when Babylonians monitored monthly commodities prices as an economic barometer, mankind has sought to divine the health of the economy from an array of sources. Today, swimsuit models, hemlines, and even Twitter all have something to say about the economy — if we know what to look for.

Some, like the coupon redemption rate, are intuitive. Others are more entertainment than economics: During recessions, for instance, Playboy centerfolds tend to be heavier, taller and older. And something as mundane as a new pair of underwear — particularly if you are a man — could indicate that good times are here."

If The Economy Is Fine, Why Are So Many Imploding by Michael Snyder via Economic Collapse Blog

Is The 1% Rolling Over? by John Rubino via DollarCollapse.com

Videos

The Total Cluelessness Of Student Protesters via Neil Cavuto via Fox News

Other Reading