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Spano: 1000-Point Drop Coming Soon

“The combination of investor skepticism, a slow economy and a Federal Reserve that keeps talking tough makes it very probable that we are going to get another thousand-point down day very soon. In fact, I am pretty sure we will get two or three within the same few weeks. …

“I believe fear and emotional selling will drive the stock market down into official bear-market territory, however, I have a hard time making a case for anything more than a run-of-the-mill bear market. It also seems to me that there is not enough stupid retail money left in the stock market to take it below the strong support level around 1550 on the S&P 500 for more than a week or two. …”

Kirk Spano and certain clients of Bluemound Asset Management own puts on SPY. Kirk has recommended puts on SPY to subscribers of his investment letter …

— Excerpt contributed by Gregory Iwan


Z-val: Kirk Spano
Via: MarketWatch
Date: 11/10/15
Disposition: Short-Term Bearish
S&P 500 on 11/10/15: 2082
S&P 500 on 2/10/16: TBD
Change: TBD
Judgment: TBD

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

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Minerd: S&P to 2175 in Short Term

“The mantra now is that bad news may turn out to be good news for the markets. Over the past couple of weeks, policymakers around the world have indicated that should any kind of negative event roil the markets, central bankers are prepared to take some form of action or, in the case of the Federal Reserve, non-action. …

“While it is always prudent to be mindful of potential headwinds, the bottom line is that policymakers have made it very clear that their tolerance for sharp declines in risk assets is virtually nonexistent. They are prepared to take action (or inaction) as necessary.

“Against this backdrop, I do not see significant risk to my forecast that the S&P could climb to a high of 2,175 in the next few months.

“Given policymaker commitment to support risk assets, it is likely that the rebound that has been underway in credit and equity prices will continue to endure over the coming months, regardless of bad news or concerns about slowing global growth.”

— Excerpt contributed by Jason Kelly


Z-val: Scott Minerd
Via: Advisor Perspectives
Date: 11/7/15
Disposition: Short-Term Bullish
S&P 500 on 11/6/15: 2099
S&P 500 on 2/8/16: TBD
Change: TBD
Judgment: TBD

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

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Gordon: New Highs Within a Month

“I’ve gone back and compared this correction to the most comparable correction, which is 2011, and what you will notice is the two are tracking very closely,” said Todd Gordon of TradingAnalysis.com.

“They both completed a double bottom, and the S&P has come back rather sharply, much like the 2011 recovery did. The only thing that’s missing is one little setback. We need some profit-taking. … We need to set back quickly, shake some longs out, before we move higher.

“I would say two to four weeks before we make a new high, but I do think in the near term we’re going to set back.”

— Excerpt contributed by Jason Kelly


Z-val: Todd Gordon
Date: 11/4/15
Disposition: Immediate-Term Bullish
S&P 500 on 11/4/15: 2102
S&P 500 on 12/4/15: TBD
Change: TBD
Judgment: TBD

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

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Kass: Unattractive 12 Months Ahead

“The outlook for our global equity markets is ‘FUBAR.’ The consensus estimates for worldwide economic growth and profits are inflated. Valuations and market levels are overpriced — possibly meaningfully so. …

“The markets, to quote my Grandma Koufax, are ‘in a (sour) pickle from Katz’s Delicatessen on Houston Street’ as the chasm between asset prices and the real economy grows ever wider.

“The global economy and the markets have never faced such a wide array of possible outcomes, many of which are adverse. Yet market participants seem afflicted with a loss of memory and the belief that only positive outcomes stand to survive.

“My Malthusian view seems justified based on the ever-weakening and wobbly global economic outlook and markets’ still-elevated valuations. And I see an unattractive risk-vs-reward quotient in the US stock market over the next 12 months.”

— Excerpt contributed by Jason Kelly


Z-val: Doug Kass
Via: TheStreet.com
Date: 10/21/15
Disposition: Long-Term Bearish
S&P 500 on 10/21/15: 2019
S&P 500 on 10/21/16: TBD
Change: TBD
Judgment: TBD

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

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The Participant 10/22/15: Arctic Oil

by Jason Kelly

Thursday, October 22, 2015



Arctic Oil

The Franz Josef Land archipelago is one of the northernmost parts of Russia. It consists of 191 islands distributed over a 6,200-square-mile area. Eighty-five percent of it is glaciated. Since annexing the islands in 1926, Russia has used them for military and research purposes. In 2012, they became part of the Russian Arctic National Park, itself established in just 2009 but already praised for protecting polar bears, gray whales, and bowhead whales.

The usually unnoticed archipelago has come under scrutiny lately because Russia built a new military installation on one of its larger islands, with what looks to be an eye on protecting Russian efforts to harvest arctic oil. The installation can house 150 troops for up to 18 months at a stretch. Russia filed a claim with the United Nations over the North Pole and its environs, and has conducted military exercises there. The new base joins an existing one in the East Siberian Sea. Russia’s Naval Doctrine was updated in July to include the Arctic’s mineral resources and strategic value.

On the significance of the resources, the US Geological Survey agrees. It estimates the Arctic is home to 13% of the world’s unharvested oil and 30% of its untapped natural gas, concentrated in Arctic Alaska, Amerasia Basin, East Greenland Rift Basins, East Barents Basins, and West Greenland–East Canada.

While climate change is considered an environmental hazard to most onlookers, fossil-fuel companies and governments connected to them see it as an opportunity in the Arctic as the ice melts. Not only will access to oil and gas deposits become easier, so will transporting the goods as new shipping lanes open. Seeing the writing on the wall, or etching on the ice as the case may be here, the New York Times wrote eight years ago: “Tensions over the control of northern navigation routes have flared in the past and are likely to get worse as access to the Arctic becomes easier.”

This is already happening. Russia says it wants the Bering Strait to become the next Suez Canal, and might begin charging transit fees to all ships navigating the Arctic. It runs a fleet of 41 government and privately-owned icebreakers, with another 11 under construction. China, which is not an arctic country, will have built two by next year. The US Coast Guard has two as well.

A rising chorus of voices is calling for America to step up its involvement in the region before Russia usurps control entirely.

A former commandant of the US Coast Guard, James Loy, wrote in the Hartford Courant last month that the US ran a fleet of eight polar icebreakers before 1960, was the first country to send a submarine to the North Pole, and used to operate more than 600 radar and weather stations from the Aleutian Islands to Greenland. He wants America to restore its historic role as an arctic power.

Heather Conley, an arctic policy expert at the Center for Strategic and International Studies, told CNBC last month that America has not responded urgently enough to Russia’s growing control over the Arctic. Nobody has yet been willing to budget enough for a deep-water port in the American Arctic, nor a fleet of icebreakers. She predicted that “if we have a major incident in the Arctic, it’s going to demonstrate our limited capabilities. … It’s going to be an education we all don’t want.”

Into this scramble, environmental objection to fossil fuels sounds a plaintive cry. Industry and government are not listening. The only factor that has paused Western company work in the Arctic is the currently low price of oil. When it rises, development will resume, and the US is likely to recommence jousting with Russia and others to pull spoils through the melting ice.



From Note 38 sent to subscribers last Sunday morning, with data as of Friday, October 16:

Bears were saying last weekend that the preceding strongest week of the year was just a short-covering rally. They provided evidence that short-covering rallies are sharp and quick, suggesting that a reversal of the reversal would be at hand. It wasn’t last week. The sharpest move was higher, on Thursday, when the S&P 500 rose 1.5% and the Nasdaq rose 1.8%, putatively because the retail sales report issued the day before was weak enough to lower the odds of an interest-rate hike this year. This was preceded by only mild declines in two of the previous three sessions, not much of a reversal of the strongest week of the year.

This blunted the argument that the strongest week was a short-covering rally. Even if so, if it lasts then how are we to distinguish a short-covering rally from any other type of rally? Without the sharp reversal following, a potential short-covering rally is just a rally. It might be reversed later, but so might any other upward move, making the designation of “short-covering” meaningless.

Next, bears claimed a week ago that the market had stalled at the top of its range, defined then as about 2000 for the S&P 500, even though it had closed the previous Friday at 2015. Now, it’s at 2033, so one would think the thesis of the market being confined to a range would go away. Instead, the range changed. A range-bound market confined by 2000 on top was so last week. Now, most technical analysts say strong resistance lies at 2040 because that level provided support for six months from February to August. Too bad they also say that extended time above 2030 would indicate a W-bottom formation. Do you get the feeling they can find a way to say they told us so no matter what happens? I do. Let’s give up on this.

* * * * *

The Kelly Letter is emailed to subscribers every Sunday morning. It costs $19.97 per month or $236.97 per year. The annual price includes a copy of The 3% Signal. See a two-minute video about the letter’s low-stress way of beating the stock market at:




The following excerpt is from a note by Alhambra’s Joseph Calhoun issued Sunday.

“The idea that an economy that performs so poorly that it keeps the Fed on the sidelines is good for stocks is one that can only be based on recent history, one that starts after the 2008 crisis. …

“At some point bad news will be bad news for stocks again but the rest of the markets are already reacting to the bad news as if it were exactly that. …

“Meanwhile, corporate profit margins appear to have peaked and debt incurred for previous stock buybacks is starting to bite, two not entirely unrelated events. Interest expense is eating into profits at the same time revenue growth is harder and harder to come by. And after so many years of low rates, refinancing just doesn’t get companies the jolt to earnings it once did. … leaving company profit growth at the mercy of top line growth, something conspicuous only by its absence the last couple of years. …

“Widening credit spreads, Treasuries and gold outperforming stocks indicate that some parts of the market are already preparing for the storm. Stocks are about the only asset yet to batten down the hatches. If this is the calm before the storm, stock investors are about to get swept overboard.”

To see this call in The Z-val Zone, please visit:


Recently Judged Forecasts:

1/20/15 Kass: Market’s Reward to Risk Unattractive | Long-Term Bearish | WRONG
7/20/15 Paulsen: Fed May Spark ‘Full Blown Correction’ | Short-Term Bearish | RIGHT

So far, fourteen forecasts have been judged. Six were right, eight were wrong. The aggregate accuracy rate is 43%. Although the sample size in this young study is still too small to be considered significant, we know from other more comprehensive studies that the accuracy of forecasting is about 50%.

* * * * *

Background: The term “z-val” is a shorthand introduced in the book, The 3% Signal, for “zero-validity forecasters” and “zero-validity environment.” The latter phrase was coined by Nobel Prize winner Daniel Kahneman in his book, Thinking, Fast and Slow, where he wrote that “stock pickers and political scientists who make long-term forecasts operate in a zero-validity environment. Their failures reflect the basic unpredictability of the events that they try to forecast.” This is why stock market forecasters are proven to sport an accuracy rate of about 50%, same as a coin toss, yet they continue forecasting.

You can peruse the growing collection of tracked forecasts in The Z-val Zone at:




Two colliding trends are causing a mail-delivery package pile-up in apartment management offices: an increase in apartment living and a surge in online shopping. US online retail sales are heading toward more than $330B this year, up from $263B in 2013. Forrester thinks they’ll close in on $500B in five years.

According to the WSJ: “The onslaught has turned management offices of apartment buildings into de facto receiving centers as landlords grapple with recording packages, tracking tenants down to pick them up and finding places to store the parcels.” One, Camden Property Trust, the 14th largest US apartment operator by number of units, stopped accepting parcels at all of its 169 properties nationwide, after receiving nearly a million packages in 2014, with the rate rising by 50% per year. Other landlords are experimenting with electronic lockers or keypad access for tenants to get their own packages from a delivery room.

Japan solved this problem years ago. Mail-delivery customers can enter the address of a nearby convenience store for delivery. The customer receives a claim code by email, and can pick up the package at the store counter 24 hours a day. The stores don’t mind because the system brings in more foot traffic. Apartments don’t have to wrangle packages. Customers don’t need to be home at a given time. Perfect.

Yours very truly,

Jason Kelly

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