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Maybe.
But even amidst the positive energy of the past two weeks there were red flags popping up.
The first is extreme correlation: Even on the good days, EVERYTHING that's not the dollar is going up. We keep pointing this out, that gold, for example, has been doing the exact same thing as stocks day in and day out. But it's not just that. Gold, Swiss Franc, the euro, equities, copper, silver, etc. all moving the same in lockstep. One day the dollar is down and they're all up, and one day the dollar is up and they're all done.
The general belief is that extreme correlation is a sign of market pressure -- of an unhealthy market that wants to snap.
And in fact there are others signs of this as well.
Various measures of funding strain, like LIBOR rates, continue to shoot up, with no slowdown, basically ever since the beginning of August.
Of course, a little perspective is needed on this front. We're still nowhere near as bad as where things were the great financial crisis.
Bottom line though: There ARE signs of worsening strain on the system, persisting even as things have gotten better over the last few days. Until you see correlations fade and some of these bank funding measures improve, better not turn your back.
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Image: AP/Jason DeCrow
Impressive results out of Google and healthier economic data, including September retail figures, buttressed investor confidence that earnings will be resilient.
Eleven sectors posted gains upwards of 7%, while only one swung below -7% (you can thank Kodak for that).
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Noted trend forecasted Gerald Celente says anyone who buys into the stock market at this point is a sucker. He tells King World News:
It’s like Bernie Madoff said, ‘The US is one big Ponzi scheme.’ From the king of Ponzi he knows what he’s talking about. All they can say in the mainstream media is that it’s a buying opportunity as they sucker people back into these markets. Did you ever here them say, ‘It’s a selling opportunity?’ Not one of them, they’re a bunch of whores.
He says Occupy Wall Street is a sign that people are starting to realize this:
“We are looking at a total global financial collapse and these collapses are not isolated to the financial community. All things are connected and the people that are suffering the most are going to be out there the most (protesting).
You have these kids holding university degrees that are worthless. They are $25,000 on average, up to $110,000 when you look at the numbers, in debt from getting a useless university degree. Now what are they going to do? They have to pay it back, they become indentured servants....
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Korea's Kospi is up 2.3%.
Australia's S&P/ASX is up 0.5%.
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Italian Prime Minister Silvio Berlusconi's Undersecretary, Carlo Giovanardi, said the Italian government is looking into the causes of recent stock market volatility.
In the past, people have suggested that Italy's stock market is volatile because of the country's and its banks' contagion from the Eurozone crisis. In response, a new round of bank stress tests is expected to test banks' exposure to the crisis, and their survivability under worsening conditions.
Giovanardi has another explanation: drug test them for cocaine!
According to Bloomberg:
Carlo Giovanardi said the government will study if it’s feasible to conduct drug tests on stock- exchange traders, with the help of the Milan Bourse and the country’s market regulator. Giovanardi, who is in charge of family policy and drug prevention, said that the abuse of drugs including cocaine might explain part of recent stock volatility.
If you understand Italian, watch him suggest drug testing for cocaine below.
Via Zerohedge
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Email Zip Microsoft Can Only Keep Growing The Hard Way: By Clawing For Market Share Matt Rosoff | Sep. 14, 2011, 7:59 PM | 490 | 7 A A A x Email Article From To Email Sent! You have successfully emailed the post.
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Ballmer Lays Out The 7 Most Important Products For Microsoft
Steve Ballmer Just Gave A Shout-Out To Zune
Microsoft Still Loves Yahoo, Even Without BartzInstead, it's going to keep doing what it's been doing for the last decade -- trying to dominate the markets it already owns, and clawing market share away in other areas.
Take a look at what Ballmer mentioned in his speech as big areas of focus for the company's current fiscal year (which started July 1). None of these areas -- not one -- will add $1 billion to Microsoft's top line (let alone bottom line) in the current fiscal year.
The launch of Nokia Windows Phones. Microsoft thinks they can become a "very strong third ecosystem in the smartphone world." But recall that Microsoft only charges about $15 for each copy of the Windows Phone platform it sells. If the Nokia Windows Phones are a hit, Nokia will gather most of the revenue -- not Microsoft.The integration of Skype, which Ballmer hopes will clear regulatory hurdles in Europe in teh next few months. Skype is a "very very" real business, as Ballmer said -- but even so, it's only got $900 million a year in revenue. Microsoft is going to use Skype to boost other businesses -- Ballmer mentioned enterprise meetings via Lync, Xbox Live, and Windows Live. But as a standalone revenue source, it won't make much of a dent.Lync videoconferencing. Video meetings are a big trend, and his videoconferencing and IM app for corporations was one of the few product demos during Ballmer's speech. It's a fast-growing part of the Office family of products -- revenue was up 20% last quarter from the previous year. But it's also growing from a small base -- probably well under $1 billion at this point.Adding TV to Xbox Live. Neat idea if Microsoft can get the licenses signed. But the Xbox is a tiny part of Microsoft's overall business -- its division contributed only $1.3 billion in operating profits and $8.9 billion in sales last year. Microsoft's total operating income was $27.2 billion, and its total sales were just shy of $70 billion. Small potatoes.Windows 8. That's a cost center for FY'12, not a growth generator -- the product almost certainly won't be out until late calendar year 2012, or Microsoft's FY'13.Office 365. Office and its related products (Lync, Exchange for email, and SharePoint for collaboration) are the company's biggest and fastest-growing areas right now. Office 365 is the online version of these products. It's going to be important for helping Microsoft to make more money in China -- it's a lot harder to pirate a service than software -- and to capture more money from small businesses. But it just launched in April, and Microsoft declined to say how much uptake it's getting or what mix of Office revenues it expects to come from Office 365 this year. In fact, COO Kevin Turner -- the second-most powerful man at Microsoft -- noted that Microsoft actually made it easier to add Office 365 services to existing software contracts last year, and that's helping to drive growth. In other words, enterprise software is still the main driver here, and the transition to services will take a while.Looking at all this, it's clear that Microsoft is not about to pull an Apple and come out with some great new product that makes revenue skyrocket.
Instead, it's going to ride the PC growth rate to keep selling Windows and Office, convince corporate customers to add new products, and try to take market share away from enterprise software competitors like Oracle (in databases), IBM (email), and VMWare (in virtualization).
That's not a sexy story, but it's allowed Microsoft to grow revenue pretty consistently at about 10% per year during most of the last decade, with the exception of the big downturn in 2008 and '09.
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600px wide (preview)400px wide (preview) 300px wide (preview) Blackboard Home » Edit » Microsoft
Summary Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to... More » Edit » Nokia 
Summary Nokia Corporation is a Finnish multinational communications corporation that is headquartered in Keilaniemi, Espoo, a city neighbouring Finland's capital Helsinki. Nokia is engaged in the manufacturing of mobile devices and in... More » Edit » Skype 
Summary Skype was founded in 2003. It’s based in Luxembourg, with offices in Europe, the US and Asia. It’s owned by an investor group led by Silver Lake and which includes eBay Inc, Joltid Limited and Skype founders Niklas... More » Edit » Steve Ballmer 
Summary Steven A. Ballmer is CEO of Microsoft Corporation and has worked with the company since graduating from the Stanford University Graduate School of Business in 1980. Bill Gates, who attended Harvard undergraduate with Ballmer... More » Edit » Windows Phone 7 
Summary Windows Phone 7 is a mobile operating system developed by Microsoft, and is the successor to its Windows Mobile platform. It is aimed at the consumer market instead of the enterprise market like its predecessor. It launched in... More » Edit » Xbox 
Summary The Xbox is a sixth-generation video game console manufactured by Microsoft. It was released on November 15, 2001 in North America, February 22, 2002 in Japan, and March 14, 2002 in Australia and Europe and is the predecessor... More » 
Matt Rosoff is Silicon Alley Insider's West Coast Editor Contact: e-mail: AIM: mattrosoff Subscribe to his RSS feed | twitter feed 
Receive email updates on new comments!cvszEmail7 Comments 0 0 Flag as Offensive kevin72 on Sep 14, 8:33 PM said: Or internationally. The vast majority of the world still doesn't have PCs or Tablets. Reply 0 0 Flag as Offensive pu$ybref on Sep 14, 9:10 PM said: @kevin72: At first, all my friends first getting on the internet wanted to video chat, then they got tired of that, then just texted, then got tired of that, most dont even talk on the internet anymore, just log on to play some youtube files, the novelty has worn off, GAME OVER DUDE. Reply 1 0 Flag as Offensive JohnCha on Sep 14, 8:45 PM said: Don't forget by extorting money from Android manufacturers with useless patents that they aren't even going to look at after they license them from MS. Reply 1 0 Flag as Offensive 
James Watts on Sep 14, 8:54 PM said: "Instead, it's going to keep doing what it's been doing for the last decade"Active Users on BI right now...
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Another wild day in Europe so far.
Moody's kicked things off with an expected downgrade to Societe Generale and Credit Agricole. BNP Paribas declined over 4% after the company announced a plan to sell $95 million in assets to raise its Tier 1 capital ratio 9% by 2012.
European Commission President Jose Manuel Barroso provided some good news in the past hour with plans to present options for the introduce eurobonds. Barroso offered this inspirational speech via Reuters: "This is a fight for the jobs and prosperity of families in all our member states. This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world. This is a fight for European integration itself."
UPDATE: Nicolas Sarkozy is said to have promised to do everything to save Greece. European markets and the euro rallied on this headline.
European markets are up nearly 1% after lots of turbulence.
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As many have noted, it's a grim time to be celebrating the American workers, who continue to have it as bad as ever.
To give you a snapshot of the situation, we've culled 7 key charts (via the St. Louis Fed) that really show how bad things are. They all come from the latest Non-Farm Payrolls report released last Friday.
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Doug Short is the vice president of research at Advisor Perspectives. Note from dshort: I have low confidence is the Q ratio this month.
The Flow of Funds data on which it's based is increasingly stale.
The latest release in June includes data through Q1 2011.
The new Flow of Funds release will be available on September 16th. I'll update this commentary that afternoon.
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin.
It's a fairly simple concept, but laborious to calculate.
The Q Ratio is the total price of the market divided by the replacement cost of all its companies.
Fortunately, the government does the work of accumulating the data for the calculation.
The numbers are supplied in the Federal Reserve Z.1 Flow of Funds Accounts of the United States, which is released quarterly.
The first chart shows Q Ratio from 1900 to the present.
I've estimated the ratio since the latest Fed data (through 2011 Q1) based on a combination of the price of VTI, the Vanguard Total Market ETF, and an extrapolation of the Z.1 data itself.
Interpreting the Ratio
The data since 1945 is a simple calculation using data from the Federal Reserve Z.1 Statistical Release, section B.102., Balance Sheet and Reconciliation Tables for Nonfinancial Corporate Business. Specifically it is the ratio of Line 35 (Market Value) divided by Line 32 (Replacement Cost). It might seem logical that fair value would be a 1:1 ratio. But that has not historically been the case. The explanation, according to Smithers & Co. (more about them later) is that "the replacement cost of company assets is overstated. This is because the long-term real return on corporate equity, according to the published data, is only 4.8%, while the long-term real return to investors is around 6.0%. Over the long-term and in equilibrium, the two must be the same."
The average (arithmetic mean) Q Ratio is about 0.71. In the chart below I've adjusted the Q Ratio to an arithmetic mean of 1 (i.e., divided the ratio data points by the average). This gives a more intuitive sense to the numbers. For example, the all-time Q Ratio high at the peak of the Tech Bubble was 1.82 — which suggests that the market price was 158% above the historic average of replacement cost. The all-time lows in 1921, 1932 and 1982 were around 0.30, which is about 57% below replacement cost. That's quite a range.
Another Means to an End
Smithers & Co., an investment firm in London, incorporates the Q Ratio in their analysis. In fact, CEO Andrew Smithers and economist Stephen Wright of the University of London coauthored a book on the Q Ratio, Valuing Wall Street. They prefer the geometric mean for standardizing the ratio, which has the effect of weighting the numbers toward the mean. The chart below is adjusted to the geometric mean, which, based on the same data as the two charts above, is 0.65. This analysis makes the Tech Bubble an even more dramatic outlier at 179% above the (geometric) mean.
Extrapolating Q
Unfortunately, as I mentioned earlier, the Q Ratio isn't a very timely metric. The Flow of Funds data is over two months old when it's released, and three months will pass before the next release. To address this problem, I've been making estimates for the more recent months based on changes in the market value of the VTI, the Vanguard Total Market ETF. In an effort to improve my estimates, I'm now using a combination of the VTI price change and an extrapolation of the Flow of Funds data itself.
Bottom Line: The Message of Q
The mean-adjusted charts above indicate that the market remains significantly overvalued by historical standards — by about 48% in the arithmetic-adjusted version and 60% in the geometric-adjusted version. Of course periods of over- and under-valuation can last for many years at a time, so the Q Ratio is not a useful indicator for short-term investment timelines. This metric is more appropriate for formulating expectations for long-term market performance. As we can see in the next chart, the current level of Q has been associated with several market tops in history — the Tech Bubble being the notable exception.
Please see the companion article Market Valuation Indicators that features overlays of the Q Ratio, the P/E10 and the regression to trend in US Stocks since 1900. There we can see the extent to which these three indicators corroborate one another.
Footnote on intangibles: I frequently receive emails asking about the absence of a line item for intangibles in my Q Ratio analysis. On this topic I defer to Andrew Smithers, who touches on the topic in the FAQs on his website:
Does the Existence of Intangible Assets Invalidate q?No, the evidence is that that the aggregate value of intangibles, if any, does not change over time relative to the replacement value of tangible assets. This is shown by the mean reversion of q relative to its average. For an academic analysis see "What Does q Predict?" by Donald Robertson and Stephen Wright, available on http://www.econ.bbk.ac.uk/faculty/wright.
This post originally appeared at Advisor Perspectives.
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