Earnings Recession: Big Negative For the Market

Man-Struggling-with-Fin-Chart.jpgMany media pundits like to skew numbers to fit their narrative and a lot of people out there believe the Wall Street storytelling that "earnings excluding energy are fine" and "sales excluding currency are growing."

Well we disagree. It's too bad that in the real world, many energy companies are nearing bankruptcy and multinational corporations have to deal with currency fluctuations. Therefore, investors can't simply ignore all the bad news and go about life hunky dory. The ugly truth is that S&P reported earnings have declined for 5 consecutive quarters and are in a full blown earnings recession.

Watch out! Negative interest rate policy is coming to the US sooner than later

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Last August, Runnymede Capital warned our readers that a financial hurricane was coming. Over the past six months, the stock markets around the world tumbled and the US has followed suit in 2016. Our clients, who gave us permission to raise cash reserves, were fortunate and their assets were protected.

They Say The Sky Is Clear, We Say Take Cover

Bubbles are the only things that matter. The rest of it is boring. You show up for work, markets are at normal levels, and there's not much you can do. It's all trivial. But in a great bubble you can get your clients' arses out of the way, and the money you can save can be quite legendary." - Jeremy Grantham

The financial services industry generally frowns upon market prognosticators. "Stay the course," they say. This is especially true in recent years since passive investments have outperformed active ones. Admittedly, peering into one's financial crystal ball and voicing an opinion can be a risky endeavor. Besides the obvious risk of being wrong, another risk is being labeled a perma-bull or perma-bear. In article after article that I read, the media loves to turn to its favorite go-to bulls and go-to bears for an appropriate quote. Unfortunately, few individuals are permitted to change their minds and even fewer do it well.

At Runnymede, we do a lot of research, and our view is dynamic, not fixed. Ultimately, our market outlook is reflected in the positioning of our clients' portfolios.

The Fed: Asleep at the Switch

Fed’s Williams foresees up to five rate hikes this year. Is he clueless?

Many of the economic departments of the regional Federal Reserve banks conduct outstanding research on the economy. At Runnymede, I rely on them heavily for my prognostication on the economy as well as the stock market. The pity is the bosses at the Fed must not read their own research. Is it possible that the Chicago Fed's National Activity Index (CFNAI) is not part of the "data" that the Central bank is so "dependent" upon? CFNAI has missed expectations 9 of last 11 months and has been below 0 (contraction) for 8 months last year. In November the index missed expectations once again, tumbling to its lowest reading since May.

Will Kamikaze Kuroda crash the global financial markets?

kamikaze_kuroda.jpgNear the end of World War II, the Japanese conducted Kamikaze or suicide attacks, designed to destroy warships more effectively than was possible with conventional attacks, against Allied naval vessels in the closing stages of the Pacific campaign. About 3,800 kamikaze pilots died, and fortunately, only a small percentage of kamikaze attacks managed to hit American ships.

Is the Kamikaze behavior alive and well in the 21st century in Japan?

We're Not Too Sure About Janet Yellen's Economic Forecast

The #Fed has NEVER correctly forecast a recession.

 — Jim Rickards December 16, 2015
 

The Fed announced that it would increase its benchmark rate by one quarter of a percentage point. The major beneficiaries will be the banks and brokers, not people on Main Street. Runnymede believes the US and world economies will weaken in the quarters ahead. Our view is supported by Jim Rogers, a top investor, and Sam Zell, a real estate tycoon.

The Fed has a very different opinion. Who will be right?

Junk bond sell off reminiscent of subprime in 2007

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As the Fed prepares to raise rates for the first time since 2007, the corporate high yield debt market, aka the junk bond market, is in serious crisis mode. The talking heads on TV say that everything is fine if you exclude energy but this is eerily similar to them saying that the S&P is fine excluding financials in 2007.

S&P 500 earnings are getting worse, not better

Two months ago, I wrote that the S&P earnings will suffer its first annual decline since 2008. The silver lining was that 2016 estimates still looked ok. However with the new year now drawing near, even those estimates are falling. For the first time, 1st quarter estimates are showing a year-over-year decline. Furthermore earnings for both 2015 and 2016 continue to contract.

The Bank of Japan Owns Half of Japan's ETFs Market and It May Just Buy the Whole Damn Thing

"A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank."  -- Ron Paul
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Bulls (and Bears) Gain Ground in Barron's Fall Big Money Poll

bulls_vs_bearsThis week's Barron's cover story features the results of their semi-annual Big Money Poll. In the spring, a record 50% of respondents categorized themselves as neutral about the market's prospects through year end. This looks like a good call as the market traded sideways to slightly down since the spring.

In the latest fall survey, it found that the pros are slightly more bullish than in the spring. 55% of respondents call themselves bullish through next June, up from 45% in the spring survey.

Even though the bulls have increased, this doesn't mean that it will translate to big gains in the stock market. Based on their mean market forecasts, the Big Money bulls see the Dow ending the year at 17,140 which is below yesterday's close. The bulls expect the Dow to reach 17,965 by the middle of next year, for a slight gain of 4.3% from here.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Runnymede Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.