Market Bubbles and Berries and Bears

August 21, 2016

Mish's Daily

By Mish Schneider

mdaily20160822
In the weeds, billionaire bears are busily gathering berries anticipating a brutal winter ahead.

With names like Steve Wynn, Carl Ichan, George Soros, Bill Gross and now most recently Paul Tudor Jones, it almost seems conspiratorial that all would publicly vocalize gloom and doom as the market makes new highs.

But who are we to argue with the likes of the billionaire bad news bears?

A fair share of octogenarians in the bunch, no doubt. But does older and richer always make you wiser?

Granddad Russell 2000 may not be as old as George Soros. But with over $29 billion in assets under management, Russell beats Soros in wealth by a couple of billion.

99.30% of IWMs holdings are companies in the United States. The Russell banks on America. Soros, known as the “Man who broke the Bank of England,” has his largest holding in Liberty Broadband Corp, an American based communications company. Huh?

Granted the Modern Family, my creation of the Russells plus five key sectors as a substantial representation of the U.S. economy, may have some issues. But they do not spell gloom and doom. Nor do many of their extended family members.

Considering we are almost through with August, a typically volatile and negative performance month, when I look around at the indices and sectors, I see relative calm and positive returns.

I write a lot about the Federal Reserve because I try to “see” what they look at and how those factors relate to the Modern Family.

Here are the criteria that the Fed traditionally relies on to conduct monetary policy.

Employment Numbers- they want to see low unemployment numbers, ones fully recovered from recession. Current view is that U.S. is close to full employment.
The Gross Domestic Product-they want to see growth and momentum of growth. The Consumer Price Index was unchanged in July and up 0.9% from a year earlier. The previous three months it was up 1.1% from a year earlier.
The GDP in the second quarter was 1.2% up from .8% in the first quarter. August 26^th, the 3^rd quarter results will release.
Inflation Data-the Fed uses a 2 percent target on a sustained basis. As of July 2016, the rate stood at .84%, up from .17% a year ago.

Did the Modern Family add to or subtract from the Fed’s confidence last week?

Retail and the Russell 2000 both gained. Additionally, Transportation, Regional Banks and Semiconductors closed higher. Only Biotechnology lost ground, although it maintained a price above the 50 week moving average. I credit that more to a lack of speculators as we enter prime vacation time.

The TLTs (20+ Long Treasury Bonds) ended the week testing but ultimately closing above the 50 DMA. That closing level seems to say, yes we are confident but not ready to commit.

This week watch the Modern Family, particularly Retail. Watch the TLTs. Wait for the GDP number. And, keep your eyes on commodities for signs of increasing/decreasing inflation.

Soros in particular, made a lot of money in the past by putting on big bearish bets that took advantage of the dotcom and housing bubbles. Now, he believes an interest rate bubble is imminent.

Bubbles and Berries and Bears. Bubbles that float for too long lose their effervescence. Berries can be nutritious or poisonous. Bears can be dangerous or tamed.

S&P 500 (SPY) Now has to clear 219.50 to keep going and hold 217

Russell 2000 (IWM) 123.68 or bust. 121 area support

Dow (DIA) Has to clear 186.88 to keep going and hold 185 area

Nasdaq (QQQ) 117.97 is the place to clear next. 116 support

XLF (Financials) January high 24.27 to clear. 23.90 area is now pivotal support.

KRE (Regional Banks) 42.00 big resistance and next point to clear. 40 key support

SMH (Semiconductors) New high close

IYT (Transportation) Now must hold 141.25 and get to 144.41

IBB (Biotechnology) It closes out the week over 290, so it did its job

XRT (Retail) 46.50 is the place to clear. 45 support

IYR (Real Estate) 80.82 is the gap low and support area

ITB (US Home Construction) 2 Inside days on the 50 DMA