Tag Archives: Dow Jones Industrial Average

Warns Of Severe And Violent Sell-Off

Legendary economist John Williams have just released his probably strongest warnings about the economic conditions of the US so far. In the latest newsletter from Shadow Government Statistics he describes the Federal Reserve’s monetary policy, and the markets reactions to it, as euphoric inflation insanity. According to Williams, a severe and violent sell-off in stocks and US currency could come with minimal, if any, warning.

“Who cares about risk? The FED will never let anything drop in price ever again.”

Zero Hedge


“Buying US stocks because the FED says it will proactively debase the US dollar is like sitting on the beach in order to get a great view of an incoming tsunami. Any pleasure so derived should be short-lived, when the terror of underlying reality quickly takes hold,” John Williams at Shadow Government Statistics writes in Friday’s newsletter.

“If one were to view movement in the price of gold as a surrogate for anticipated inflation, for example, the issues begin to come into focus,” Williams continues.

“Consider that last night’s respective S&P 500, Dow Jones Industrial Average and NASDAQ Composite closing levels were up by 7.5%, 10.8%, 12.1% from a year ago, but the price of gold was up by 29.6% in the same period,” he points out.

“Relative to gold, which tends to hold its purchasing power over time — albeit sometimes in an anticipatory manner — the S&P 500, Dow Jones Industrial Average and NASDAQ Composite have declined respectively by 22.1%, 18.8% and 17.5% year-to-year. This is against the prospective inflation environment being discounted by the gold market.”

While stock prices do tend to rise in an inflationary environment – where revenues and profits are inflated – rising stock prices do not always stay ahead of inflation.

On a constant-dollar or real, inflation-adjusted basis, stocks go through bull and bear markets, just as they do otherwise, Williams explains.

“If prices do not stay ahead of inflation, investors lose value in terms of the purchasing power of their assets.”

The equity markets may rally in the upcoming inflation, but the systemic implications and current gold behavior suggest that the circumstance will not give investors a positive real return, Shadow Government Statistics writes in their “Hyperinflation Special Report”.

Severe And Violent Sell-Off

“Given the current systemic distortions and extreme irrationality in the equity markets, a severe and violent sell-off in stocks would not be a shock, and it could come with minimal, if any, warning. It also might be coincident with a U.S. dollar-selling panic,” Williams writes.

There is particular risk of recent dollar selling, according to Williams, which has been closing in on historic lows.

This could easily turn into an outright dollar-dumping panic, which not only would roil the domestic U.S. markets, but also would set the stage for a rapid acceleration of domestic consumer inflation.

“Irrespective of any near-term market volatility, gold and silver, as well as the stronger currencies, remain the best long-term liquid hedges against loss in purchasing power of the U.S. dollar.”

Who Cares?

However, no warnings are taken seriously amongst the market participants these days, as most remains convinced that we’ll have a repetition of the 60% stock market rally of 2009 when the Federal Reserve conducted the first round of quantitative easing, the QE1.

Now, everyone is expecting another crazy rally on the wave of QE2.

As Tyler Durden at Zero Hedge insolent and accurate points out:

“We sympathize with John’s sentiment, but who cares about risk? The FED will never let anything drop in price ever again. It is now far too late to prevent the biggest bubble in the history of the world, and its subsequent collapse.”

Shadow Statistics

Walter J. “John” Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies.

 

John Williams

 

For nearly 30 years, Williams has been a private consulting economist and become a specialist in government economic reporting.

One of his first clients was a large manufacturer of commercial airplanes who had developed an econometric model for predicting revenue passenger miles.

The level of revenue passenger miles was their primary sales forecasting tool, and the model was heavily dependent on the GNP (now GDP) as reported by the Department of Commerce. Suddenly, their model stopped working.

Williams realized the GNP numbers were faulty, corrected them for the company, and the model worked again, at least for a while.

This was the beginning of a long process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present.

For a number of years, Williams conducted surveys among business economists as to the quality of government statistics. The results led to front page stories in the New York Times, Investors Business Daily, considerable coverage in the broadcast media, including several meetings with representatives of the government’s statistical agencies.

“Despite minor changes to the system, government reporting has deteriorated sharply in the last decade or so,” John Williams says.

Alternative Data

Here’s a few examples of Shadow Government Statistics alternative data, with courtesy of ShadowStats.com.

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Related by The Swapper:

Here Comes The QE2!

Global Economic Growth Slows For 5th Month Running

Financial Markets: Bulls Ready To Repeat 09 Rally

Betting On The FED

Currency: The Weapon of Choice in Trade Wars

QE Expectations Continues To Fuel The Risk Rally

Commodities: Dollar Movements And QE2 Sets The Agenda

Why Gold & Silver Prices Will Continue to Explode Higher

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Filed under International Econnomic Politics

Understanding High Frequency Trading

High Frequency Trading has been around for a while but has been getting more attention since the unprecedented intraday U.S. stock market crash, known as the flash crash, on May 6th, 2010, when the Dow Jones Industrial Average dropped nearly 1000 points in a half hour before recovering in minutes.

So, what is high frequency trading?

VOA‘s Philip Alexiou reports:

See also: Here’s The Official Flash Crash Report; Scapegoat Found

Related by The Swapper:

The Ultimate Trading Weapon

HFT Turns To Low Liquidity Stocks

Derivative Trading Just Keeps Getting Bigger

“Artificial Intelligence” To Be Implemented In HFT

US Stock Markets Infected By Malicious Software?

Testimony Of A High Frequency Trader

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Wall Street Get Smacked Again – Post-Trading Commentary

U.S. stocks sank, with the Standard & Poor’s 500 Index falling to its lowest level in four months, as slower-than-estimated jobs growth spurred concern the economic recovery may not be as robust as forecast. The S&P 500 Index declined 3.4 percent to 1,064.88. It was the biggest drop on the day of the U.S. Labor Department’s monthly jobs report since at least 1998, according to data compiled by Bespoke Investment Group LLC. The Dow sank 324.06 points, or 3.2 percent, to 9,931.22.

“Those who had been expecting a more robust recovery might be cutting down their projections.”

James Dunigan


The S&P 500 erased its weekly advance after the Labor Department said today that payrolls increased by 431,000 in May, trailing the median economist forecast in a Bloomberg News survey that called for a gain of 536,000. Private employers added 41,000 positions, 139,000 less than estimated.

“The jobs report puts a damper on the growth story,” said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia.

“It’s a victim of the uncertainty that we’ve seen over the last months especially regarding the European situation. Those who had been expecting a more robust recovery might be cutting down their projections.”

Mohamed A. El-Erian, whose firm runs the world’s biggest mutual fund, says stock investors should brace for higher volatility after the jobs report.

“Investors should keep their seat belts on and tight,” El-Erian, chief executive officer of Pacific Investment Management Co, wrote in an e-mail to Bloomberg News.

“The disappointing jobs report is further evidence that drivers of self-sustaining private consumption growth are facing structural problems that result in slow income growth, reduced credit availability and lower ability to monetize wealth.”

The Euro sank below $1.20 for the first time since March 2006, to $1,19550,  amid speculation the European fiscal crisis may be spreading into the financial system.

A Defining Moment

“Every now and then, what starts out as an apparently isolated incident of tragedy or stupidity turns out to be one of those defining events in history. A morning in September at the start of the decade turned out that way, when what seemed, at first, to be an errant act of navigational aerial stupidity turned out to be an initial salvo of terrorism.”

“Now, we have what started out as a human tragedy, the loss of life aboard an offshore rig, turning into a defining moment for the oil industry, national security and domestic oil supply. The BP disaster has turned offshore drilling into a political quagmire, and has destroyed one of our nation’s pillars of domestic oil supply,” analysts at Cameron Hanover writes in a post-trading commentary Friday.

Here’s the rest of the market summary:

“From our perspective, Friday’s biggest story was the Baker‐Hughes report, released after the market closed, which showed half of our nation’s offshore rigs idled. The number fell from 46 to 23, its lowest figure since August, 1993. The moratorium on deepwater drilling gave us our first decline in the rig count in six weeks, and saw it plunge by 29 to 1,506. Gas rigs dropped by 2.1%, or by 20 rigs, to 947. No one has been talking about a “gas spill,” but gas is just the first of what we expect to be many collateral damages.”

“The rig count was not Friday’s motivating force, despite the importance we may read into it. Oil prices dropped steeply, as traders reacted to a collapse in equities, a decline by the euro to less than $1.20, its lowest exchange rate against the US dollar since March, 2006, and an unemployment report which showed much less of an increase in non‐farm payrolls than had been expected. These three factors worked hand‐in‐glove together to generate the huge decline in oil prices.”

“On the charts, crude oil prices had been threatening to break above resistance up to $75.72 on Thursday, but had fallen short of that. Heating oil prices had broken over 203.92, but they finished one point beneath that level, which makes Friday’s decline a technical failure on the charts. That realization seemed to add another element of selling to the mix.”

“From the popularly‐held perspective, Friday’s decline came as the result of the May unemployment figures being disappointing, with a gain in non‐farm payrolls of 431,000 against estimates for a gain of 515,000. Many of the jobs that did materialize came from census bureau positions that are temporary. The euro fell more quickly and sharply after the numbers were released, but it had already been on the ropes because of concerns over Hungarian debt. This was tucked in beside the problems experienced by Greece and others earlier in May. And the US stock market plunged, losing 323.31 points to end at 9,931.97, below the psychologically important 10,000 level.”

“The upshot of this week’s volatile trading is this: US oil demand has increased in recent weeks, but is under pressure by unemployment, which continues to be the millstone weighing around the economy’s neck. Any gains made by the US are being balanced by concerns over European sovereign debt, which has become a can of worms, now that it has been opened. And any hope that consumers might feel cheered by anything has taken a hit with the DJIA breaking below 10,000, a psychologically significant level that leaves investors feeling less wealthy. Oil prices seem to be on the verge of a fresh round of losses. Recent gains now seem to have been part of a rally in a market that is still weak.”

Note: When we do rally or advance for real, the loss of offshore drilling and recent gains in demand now seem likely to lead prices higher. We need to get past everything else, though, first.”

Here’s a copy of the commentary, incl. charts and figures from Cameron Hanover.

Related by the Econotwist:

Rosenberg: “Statistical Illusion Of Recovery”

S&P 500 Drops 3.4% On Disappointing Job Report

Oil Spill Makes Waves

Why Optimists Are Wrong About The Euro Zone

BP Is Drowning In Its Own Oil Spill

Goodbye Keynes – Hello Ricardo!

U.S. Stock Market: Worst Week Since 1940

Merkel, Obama, Sarkozy Have Investors Shitting Their Pants

European Banks: “Leman Times Ten”

Welcome Back to Earth, Mr. Market

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Filed under International Econnomic Politics, National Economic Politics