Wednesday, May 7, 2014

Global Contagion Of Unprecedented Leverage Spreading Like A Pollen Storm From East To West And Back Again, Blanketing All Four Corners.




Goldman, BOA and JP Morgan break two-year support lines
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So Goes the Banks, So Goes the Broad Market? Well… this is not a perfect analogy, yet more often than not, what banks do (strong or weak) does seem to have an important impact on the broad markets.
The above 3-pack reflects that Bank of America, JP Morgan and Goldman Sachs have all broken below 2-year rising support lines, while the broad markets have not.
The Power of the Pattern would suggest to keep a close eye on these key financial stocks to see if any further weakness takes place and if it starts to impact the S&P 500.
 
China Manufacturing PMI Misses 6th Month In A Row As Home Sales Collapse 47% YoY
For the 6th month in a row, China HSBC Manufacturing PMI missed expectations. With a 48.1 print for April (vs 48.3 flash) this is a very modest rise from March’s 48.0 but is the 4th month in a row of contraction for the broader-based HSBC-version of the PMI (as opposed to the official more-SOE-biased version which remains in modest expansion). This is the longest streak of contraction since Oct 2012 (and the 3rd consecutive month of new order contraction) as employment drops for the 6th month in a row. Most worrying new export orders dropped further showing no signs of a US-driven pick-up post-weather. As if that was not enough to upset the ‘recovery is around the corner’ crew, home sales in China in the most recent (most frenetic typically) period, collapsed 47% year-over-year (and a stunning 65% in tier-2 cities). But apart from that – everything’s great in the newly appointed largest economy on earth…
 
Margin debt takes a turn from all-time high levels. Be concerned?
 
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It doesn’t matter until it matters! Will a decline in margin debt from all-time highs matter this time? Doug Short each month does an excellent analysis on margin debt and the latest update is now out.  (see current info here) 
In the past margin debt at historical levels didn’t seem to matter, until margin debt started decreasing. The above chart highlights that at each (1), margin debt was at historical highs and then turned south and the S&P 500 soon followed.
In my humble opinion one should not look at margin debt as the holy grail to portfolio construction. It has been a good tool in helping to know when to overweight and underweight towards risk assets.
Margin debt has been swiftly pushing higher for the past 8 months in a row and now slipped a little this past month. IF….IF margin debt should start decreasing swiftly, history would suggest something different is taking place in the mind of aggressive investors.
Bubble talk catches fire among big-money pros
“Covenants have been stripped away, cov-lite is the norm, senior debt levels are actually higher than they were in 2007, although total debt is not quite where it was,” Rowan added, noting looser lending terms given to borrowers.
“We’re back to doing exactly the same things that were done in the credit markets in the crisis.”
Time Bomb About to Blow

http://theeconomiccollapseblog.com/ar…
http://www.blacklistednews.com/The_Am…
http://www.zerohedge.com/news/2014-04… 
Global Manufacturing Growth Slows To A 6-Month Low 
http://www.businessinsider.com/jpm-global-manufacturing-pmi-2014-5#ixzz30rGL6Pnf

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