Morning Note Apr 8, 2016


Morning Note-
Friday, April8, 16
08:30 ET Update:
[Stockboardasset] S&P futures +68bps
08:30 ET Update:
[Stockboardasset] Nikkei +282bps


All quiet on the global front after Japan’s FX woes and Europe’s faltering Banks. Its been a week of emotions as US equities have gone no where, but bracket in measured moves . Overnight, Puerto Rico Bonds crash after Moratorium raises default risk. We turn to auto sales where truck orders plunge 37% as unsold inventories reach 2007 levels. US light auto’s have downside imbalance from an ascending trend line developed at the helicopter drop when cash for clunkers was initiated. So, we turn to crude products to validate transportation concerns, and find gasoline demand has dropped to 14 month lows, and distillate demand are at recessionary levels. It’s been 11 months and counting as the SPX has not made a new high, it’s due to fundamentals realigning as an earnings recession depends. 1Q16 is set to report a terrible quarter marking this the 4th consecutive quarter Y/Y since 2009. We note, companies who use Non-GAAP vs. GAAP are playing a dangerous game of waiting for profits, the earnings recession could be much deeper as 30-40 cycles of corporate profits and commodities are reverting to baseline growth developed when interests rates were >10%. Tech and Biotech are much in focus as in a time of stress market analyst fall back to cash flows and basic fundamentals. To support our view of larger cycles converging present date, Greenberg Chubb’s CEO says, “Unwind in debt financing may stunt growth”. Rising credit risks, HY spreads widening, and the price of oil have been a measure of investment sentiment. US is in a tightening cycle with HY Default rates at Lehman Crisis levels. Yellen is taking a page from the DOT COM FED’s dual mandate, and is slowly deflating bubbles. Price/EBITDA is current at 2000 peak, as the US is in an earnings recession with 23x GAAP PE. IPO participations are at cycle lows, and in 1Q there were no tech IPOs. Us consumer credit rises $17.2bbillion vs. estimate of $14.9 Billion, but retail is sluggish.

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SPX Forecast for 2016.

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The Greatest Super-cycle of ManKind is Reverting to Mean


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FANGs BEAR Flag, Upcoming Earnings

FANGs BEAR Flag, Upcoming Earnings 

FANGs have advanced since early FEB constructing a bear flag. Coming into focus will be earnings, as we all know an earnings recession is in full blast. Reported by Investors.com tech is forecasted to have the worst earnings call since the great recession. This will be the trigger for a continuation downside break. We note, the use of NON-GAAP vs. GAAP is starting to make a presence in the media. Tech companies who use Non-GAAP play a dangerous game of waiting for revenue. In times of stress, analyst will revert back to cash flows.

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Current Convictions

Current Convictions

1. WTI-> Reversion in Progress—–Please Review: Oil Notes

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2. SPX-> Unfair High as of 4/8/15 

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3. IBB-> Use The Guide to Play Yellen’s Deflating Bubble Ride of biotech

Found here->IBB Guide of Deflation

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The Uneasy Truth- 3 Precedents of Fact

The Uneasy Truth- 3 Precedents of Fact 

We believe, the upcoming oil meeting will be a complete failure and a disappointment to an oil market who has advanced nearly 50% on head line chasing. The outcome of the meeting could trigger the next market clearing— constructive outcome has a low probability. The two major players in the deal are Russia and Saudi Arbia. Those 2 nations have 3 precedents of oil talks, which end in complete failures. The data stretches back to the mid-1990s, where the outcome is both nations increase output despite cut/freeze agreements.
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1Q16 Marked a pivotal point in Russia and OPEC (primary Saudi Arabia) to rebalance the oversatured oil market. News flooded the world on freeze agreements, which sent oil +50 advancement on speculation ex fundamentals.  Less than 2 days into 2Q16 the oil narrative of everything is awesome was dismantled. In fact, Saudi and Russia outputs increased in March contradicting agreements and or statements in the earlier quarter. Hmm, where have we seen this before? Refer to diagram above.

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The outcome is simple: No Production Cuts and Or Freezes. If there was even a freeze both nations are at levels much higher than 1Q16, which would make no difference, but would rally WTI for a intermediate timeframe, then as large lots of physical hit the market widening spot, the market will return to fundamentals. Lower for longer and clear the excess is the narrative which will return until the next OPEC summer meeting. The multi decade mean is at 20 for WTI. As we know, markets tend to deviate from a mean, find an unfair level, and then revert back. Global growth is anemic, its a demand side issue to fix oil. Supply infrastructure across the world is at full capacity, and central bank interests rates are at ZLB or NIRP. So, that means growth is limited going forward. Welcome to the world of lies of how to move oil 50% on false narratives and short squeezes, we welcome the next market clearing. 

Great Research Report-> Russia and OPEC: Uneasy Partners

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USDJPY Largest Deviation vs. SPX in YEARS

USDJPY Popular carry trade with many global institutions. YEN is now higher as institutions ignore Kuroda as the BOJ has lost control of their FX. Market searches for higher yield and piling into YEN. Carry trades are unwinding, and this also means less liquidity for global indexes. As YEN advances, USDJPY falls to levels not seen since QQE start, and US Equities have the largest divergence in Years. Warning signals should be going off. We have prepared for downside reversion.

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We issue Migration lower high probability SPX

We issue Migration lower warning has high probability SPX

Price target 2002, 2000

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Nautilus Research: 11months w/o New High SPY

Nautilus provides nearly 50 years of data on a daily log scale of SPX. Their research indicates an eerie repetition of market price action after 11 months of no new highs.

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30YR Convention Mortgage Rate

30YR Convention Mortgage Rate was lowered again this morning to Feb’16 lows. Since August 2013 the trend has negative diverging from 4.49 to 3.39. 

40 years of data, we spot similar occurrences of decrease in rates before a major economic shock. 


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