• Latest from Intrade
    Posted by on November 1st, 2010 at 9:48 am

    With one day to go before the election, I update my implied House result using prices from Intrade:

    Here’s my earlier post which explains how I was able to derive these numbers.

    The latest prices are 54.0 for the 60 seats or more and 85.0 for 50 seats or more. That works out to a GOP gain of 60.1 House seats with a standard deviation of 10.7 seats.

  • The Baby-Step Rally
    Posted by on November 1st, 2010 at 8:54 am

    The market has done very well since late August, even though it’s been in very small increments. Since August 30th, the largest correction has been 1.59%.

  • More on Our Gold Model
    Posted by on November 1st, 2010 at 8:41 am

    Michael Stokes at MarketSci has a great post where he takes a closer look at our Gold Model. He found that using 2.4% as the break-even point produces a slightly better fit. (Here’s my original post.)

    Michaels sums it up with three points; the good, the bad and the geeky:

    The GOOD: there’s clearly something good about the CWS model. The analysis is made a little difficult by the fact that we have so little data to look at (the price of gold didn’t float prior to the late-1960’s), but the model definitely makes sense conceptually and fits the macro trends in gold over the last 40+ years.

    The BAD: during both of those periods (in grey) when the model and gold diverged, long-term real rates were behaving very different than short-term real rates (and better matched the changes in gold). I’m wondering if the model could be improved by incorporating both short and long-term rates. Food for thought for future analysis.

    The GEEKY: the model “works” by trying to predict month-to-month changes in gold, but has only done well modeling the absolute price level of gold. That’s awkward. A model that predicts monthly changes, but is only effective in terms of absolute price, is especially prone to curve-fitting because each monthly prediction impacts all future data points. Just something to roll around in the noggin’.

  • Expect a Pullback this Week
    Posted by on November 1st, 2010 at 8:23 am

    Last Thursday, I noted that the S&P 500 has barely budged over the past few trading days. Well, we can add Friday’s market to the list as well. The S&P 500 lost 0.52 points on Friday, or 0.04%.

    This week, however, I think it’s very likely that we’ll see a sell-off following the Fed’s QE2 announcement. Don’t worry: I don’t think it will be a major sell-off. Bear in mind that with the recent rally that began on August 30th, the market has rallied on 27 sessions and fallen on just 16. The largest pullback based on closing numbers is 1.6%.

    The catalyst for any sell-off will most likely be that the Fed’s QE2 total won’t be as much as Wall Street expects. The number that’s most frequently tossed around is $500 billion in Treasury purchases over the next six months. That’s been estimated to be equivalent to a 0.50% rate cut.

    I’m still expecting a number closer to $250 billion, but no one from the Fed has contacted me for my views. In any event, we’ll know more on Wednesday. Also, the ECB and Bank of England meet on Thursday, so it’s a big week for central bankers.

    The good news that no one wants to hear is that this has been an excellent earnings season. It’s odd how there’s always someone to attack any good news that comes along. According to the last figures, 71% of companies have beaten earnings expectations so far. That’s very, very high.

    I will add with false modesty that all the stocks on our Buy List have beaten earnings this season. We’re not done just yet. There are three more earnings report for the Buy List this week; Moog (MOG-A), Wright Express (WXS) and Becton Dickinson (BDX).

    We’re also heading into what has historically been the best six-month stretch of the year for the market. Bespoke notes that since 1960, the S&P 500 has averaged a 6.4% gain for the November through April period. For May through October, the market has only averaged 0.8%. I should add that the market has also done well for the last three “third years” of a presidential term.

    I’ll be very curious what the ISM Index will say for October. I don’t expect much of a change, but even a little movement should put the Double Dip nonsense to rest. It won’t, of course, but it should.

    Finally, we’ll get the October jobs report on Friday and it will not be pretty.

  • Morning News: November 1, 2010
    Posted by on November 1st, 2010 at 7:01 am

    U.S. Stock-Index Futures Climb as Chinese Manufacturing Expands

    U.K. Manufacturing Growth Unexpectedly Accelerates as Exports Strengthen

    Wall St. Futures Point to Higher Open; Data Eyed

    Oil Rises as Dollar Weakens on Speculation of Fed Credit-Easing Measures

    China Manufacturing Posts Biggest Gain in Six Months

    Awaiting Fed’s Plans, Markets Are in Limbo

    U.S. Economy Grew 2% as Consumer Spending Rises

    Humana Tops Estimates, Lifts Guidance

    Pontiac, 84, Dies of Indifference

    Oracle Seeks $2.3 Billion in SAP Download `Humiliation’ Trial

    A Very Big Week Ahead

    The Joys of the Edge and Dangers of Ignoring the FAT Middle

  • Buy List Update
    Posted by on October 31st, 2010 at 9:58 pm

    Now that October is on the books, let’s take a look at the YTD performance of the Buy List.

    Through October, the Buy List is up 10.25% compared with 6.11% for the S&P 500 (dividends not included).

    Here’s a look at the chart for 2010:

  • You STILL Haven’t Sign up for CWS Review!
    Posted by on October 29th, 2010 at 3:01 pm

    Well, what are you waiting for? It’s free!







  • “Yes you did. You invaded Poland.”
    Posted by on October 29th, 2010 at 2:42 pm

    That’s enough market talk for one week. Have a great weekend everyone, and enjoy this classic John Cleese (who turned 71 this week) clip as Basil Fawlty:

  • Time to Raise Rates?
    Posted by on October 29th, 2010 at 2:05 pm

    Last week, Josh Brown brought up the issue of the Federal Reserve raising interest rates. With QE2 around the corner, it doesn’t look like the Fed will, but I think Josh has a good case.

    Here’s a look at the Fed Funds rate against trailing four-quarter nominal GDP:

    The two lines tack each other well. The hotly debated point is the middle of last decade when nominal GDP indicted that rates were too low. Other commentators said this as well, and more sophisticated measures like the Taylor Rule agreed.

    Lately, however, nominal GDP growth has climbed to over 4% while interest rates are still stuck at 0%. Should this be discounted since it’s only making up for the slack caused by negative growth? Or is the Fed again behind the curve?

  • The Double Dip Is Dead
    Posted by on October 29th, 2010 at 12:50 pm

    Continuing with what I said before, the Economic Cycle Research Institute also calls the end of the Double Dip:

    The good news is that the much-feared double-dip recession is not going to happen.

    That is the message from leading business cycle indicators, which are unmistakably veering away from the recession track, following the patterns seen in post-World War II slowdowns that didn’t lead to recession.

    For 25 years, we’ve personally spent every working day studying recessions and recoveries. Based on our work and that of our colleagues at ECRI, we’ve called the last three recessions and recoveries without any false alarms, including an accurate forecast of the end of the most recent recession in the summer of 2009.

    After completing an exhaustive review of key drivers of the business cycle, ranging from credit to inventories and measures of labor market conditions, we can forecast with confidence that the economy will avoid a double dip.

    But the bad news is that a revival in economic growth is not yet in sight. The slowing of economic growth that began in mid-2010 will continue through early 2011. Thus, private sector job growth, which is already easing, will slow further, keeping the double-dip debate alive.

    Of course, it is the renewed job market weakness, combined with deflation fears, that is behind the Fed’s promise to implement a second round of quantitative easing, or QE2.