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Singer: Breakdown Will Be Intense

In a cheerless missive to investors, Paul Singer at Elliott Management warned that the bond market is broken and that once central banks lose their ability to prop it up, the crash will be big. This is a recurring bearish argument, but always popular.

Singer says now is “in many ways the most peculiar period we have faced in 39 years. … Everyone is in the dark. Experience doesn’t count for much, and extreme confidence may be fatal. … the ultimate breakdown (or series of breakdowns) from this environment is likely to be surprising, sudden, intense, and large.”

— Excerpt contributed by Jason Kelly


Z-val: Paul Singer
Via: Zero Hedge
Date: 8/18/16
Disposition: Medium-Term Bearish
S&P 500 on 8/18/16: 2187
S&P 500 on 2/17/17: TBD
Change: TBD
Judgment: TBD

Z-val definition and more forecasts in The Z-val Zone.

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Faber: S&P to Crash 50%

Marc Faber said on CNBC’s Trading Nation that the stock market could “easily give back five years of capital gains, which would take the market down to around 1100.” Getting to 1100 from the S&P 500’s Friday, August 12, 2016 close at 2184 would require a 50% crash.

It’s not clear what has Faber so bearish in this latest warning from him. When pressed for reasons, he said “you never know exactly why this will happen” and added that recent gains are unsustainable. Finally, he elaborated: “The fact is, the market hasn’t really been driven by genuine buying, but by stock buybacks, takeovers and acquisitions, and market leadership has been narrowing. It’s not that many stocks that have been making new highs. It’s quite a narrow group of stocks that have been very strong.”

— Excerpt contributed by Jason Kelly


Z-val: Marc Faber
Date: 8/9/16
Disposition: Short-Term Bearish
S&P 500 on 8/9/16: 2182
S&P 500 on 11/9/16: TBD
Change: TBD
Judgment: TBD

Z-val definition and more forecasts in The Z-val Zone.

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Gundlach: Sell Everything

Noting the recent run-up in the benchmark Standard & Poor’s 500 index while economic growth remains weak and corporate earnings are stagnant, Jeffrey Gundlach, the chief executive of DoubleLine Capital, said stock investors have entered a “world of uber complacency.” …

“The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach said in a telephone interview. “The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”

— Excerpt contributed by Jason Kelly


Z-val: Jeffrey Gundlach
Via: Reuters
Date: 7/29/16
Disposition: Medium-Term Bearish
S&P 500 on 7/29/16: 2174
S&P 500 on 1/27/17: TBD
Change: TBD
Judgment: TBD

Z-val definition and more forecasts in The Z-val Zone.

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Kelly Letter Doubles S&P 500

The Kelly Letter‘s automated system is winning again.

Through last Friday’s close, here’s how the three tiers of The Kelly Letter have performed so far this year, compared with the S&P 500:

+11.4% Tier 2
+6.3% Tier 1
+4.1% Tier 3
+3.6% S&P 500

The letter’s overall performance is precisely twice the S&P 500’s, up 7.2% compared with the index’s 3.6%.

The letter never forecasts. Instead, it runs proven automated systems that react to price changes alone. No emotion or guesswork. This approach puts it ahead of the market and way ahead of supposedly smart money managers, who fall victim to worries and gut feelings and other thoroughly disproven approaches to investing.

According to last week’s US Investment Policy Committee Notes by S&P Global Market Intelligence:

US equity markets continue to befuddle a majority of domestic money managers. S&P Global Market Intelligence’s Mutual Fund Research Group reported that only 437 (21%) out of 2,053 large-cap fund share classes equaled or beat the 3.57% total return of the S&P 500 year to date through May 31. Large-cap growth funds on average lost 0.98% YTD, while large-cap value and large-cap core funds rose 3.4% and 2.4%, respectively.

The underperformance of large-cap core funds was wider than the cost of the fund’s expense ratio, highlighting poor stock selection. Uncertainty and potential underperformance will probably continue as investors battle head-wind worries about the Fed’s rate hike, Brexit, China’s slowing growth, and the upcoming political conventions.

Here’s a thought, pros: Stop guessing and start automating. Accept that you have no idea what effect any input will have on the financial system. Those head-wind worries are just the ones of the moment, preceded by similar ones and to be followed by others. The coast will never become clear, yet truly smart participants win over time, and you could become one of them by letting go of your ego and allowing price action alone to determine what you do next.

Switch to The Kelly Letter and enjoy life!

Join me to stay ahead of the market, while also staying calm. Automation that uses price action alone runs circles around everything but dumb luck.

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Timely Dow 2 Signal for 2016

The Kelly Letter Excerpt
The following is from this year’s Note 16 of The Kelly Letter, which went out to subscribers last Sunday morning.

The market continues confounding bearish pundits. The Dow Jones Industrial Average closed above 18,000 for the first time since last July, and from its Friday close at 18,005 requires only a 1.5% rise to eclipse its all-time high of 18,272 recorded last May. …

The year is going well for us, helped along by the strong outperformance of our preferred small- and mid-cap stock sectors in the past two weeks, and I’m already tempted to declare the changes in Tier 3 a success. Our goal there was to reduce the drag of forecasting on the overall portfolio by putting an even larger percentage of capital under the guidance of reactive systems. The two new ones in Tier 3 are Dow 2 and Mo 1, with the speculative portion of the tier reduced to just a fifth of the allocation.

Dow 2 sensed the time to move out of Intel (INTC $31.64) and into Wal-Mart (WMT $68.72), which has been great. As Intel works to realign itself with a growing emphasis on mobile devices at the expense of personal computers, its stock price is struggling. As Wal-Mart benefits from a turnaround plan that’s farther along and should produce a leaner retailer, its stock price is appreciating.

The differential between the two stocks, with INTC down 8.2% and WMT up 12.1%, is a 20.3-point spread. This translates into a significant improvement for us, given our high allocation to the Dow 2 plan. We invested $69,091 in WMT on January 4. It’s now worth $78,478. Had it remained in INTC, which we sold that day at $33.93, it would be worth just $64,427. We’re $14,051 ahead thanks to the Dow 2 signal. …

The last two weeks have provided a convenient case-in-point for why our reactive systems are such a fine way to benefit from the financial markets. They are low-stress and run on autopilot, beating the frantic pros who continue demonstrating their shortcomings with newly failed predictions. I was able to leave the plans alone through a busy schedule that included major earthquakes [in Kumamoto, Japan] as a disruption, and what did I find upon returning? Our money beating the market and therefore most professional money managers. The S&P 500 is up only 3% so far this year. We’re up 5.6%. Even more impressive, unlike most price-only comparisons, these are more accurate total-return comparisons.

Stay true to intelligently reactive plans built on decades of market behavior. They are beatable by dumb luck only, which pundits call skill, and which we know to be unreliable. Guessing is best reserved for fun and games, not money management for a better future. In the end, steadily and surely, automated intelligent reaction outdistances professional guessers by a wider and wider margin, while costing far less in fees. Just ask Bill Ackman at Pershing Square, the billionaire hedge fund manager who lost 20.5% last year and another 25% in this year’s first quarter. That’s some bang-up expertise for hire at a high price, eh?

No thanks. We’ll stick with what works, and what’s cheap. How convenient that they’re the same thing.

Yours truly,
Jason Kelly
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