Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today.

Two Charts Show How The CPI News Increases The Danger By Underplaying It

When most of us think about inflation, we think of the prices of the things we buy regularly. The government supposedly measures that in the CPI – Consumer Price Index.  

I think that intuitively most of us experience a higher level of inflation that the government reports.

There’s a reason for that. The government doesn’t measure inflation, at least as classically defined. The classical definition is a rise in the “general” level of prices. That should include all things that are bought and sold – that have prices. 

The CPI doesn’t do that. It measures a narrowly defined, and statistically manipulated basket of consumption goods and services. And the government does its best to suppress the inflation rate of those items. That’s because the CPI was never intended to measure a rise in the general level of prices. It was intended as a means for indexing the cost of labor contracts and government contracts in eras of high inflation.

Given that purpose, government statisticians have habitually looked for ways to get to these numbers to understate actual inflation. They use hedonics to substitute lower priced goods for higher priced goods when prices are rising because in theory consumers will make that switch. But if we wanted to measure general inflation accurately, wouldn’t we survey the prices of the same goods over time.

Then there’s the biggest trick of all. Click here to see it, and see how it puts the Fed behind the curve and us in danger.

The post Two Charts Show How The CPI News Increases The Danger By Underplaying It appeared first on Lee Adler’s Sure Money.

The Magic Hand Appears Again But These Charts Show It Will Cut The Cord

The Magic Hand appeared again yesterday, just when it looked as though all was lost.  Is this the bottom?

One thing is certain. I pointed it out in a chart the other day which I have updated below right up to this morning’s action. There is a crucial support area from 2590 to 2630 on the S&P 500. Yesterday it was stretched beyond the limit, when suddenly, out of nowhere came the Magic Hand.

In this instance, the bulls can thank the shorts again, because with liquidity tight and getting tighter, there’s not enough intrinsic demand for stocks to mount a massive, lasting rally. But in a market that has become thin because prices have crossed the same range over and over, short covering can drive a fast rally. But only until the short covering exhausts itself. And those times are getting shorter.  

Nevertheless, when the earth is in its final hours, with the core about to explode and obliterate the last remaining vestiges of life, there is one thing that you can count on.

The shorts will cover.

I remember the old saw of the ancient, white haired, wise men traders I sat with in customers galleries at Walston and Company back in the late 1960s and early 1970s, when bear markets were the rule:

He who sells what isn’t his’s, must buy it back or go to prison

And short sellers have hair triggers. Once they see that support isn’t breaking down, they pile in all at once to cover their positions. That also tends to pull in a few long side buyers who have cash. They’re in short supply now, however.

Ultimately, each of these short covering rallies weakens the market because they deplete the demand that is coming from short covering. So, what about short interest today? Will it continue to drive rallies every time support is threatened?

Examining Primary Dealer and customer shorts gives us some obvious answers

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Despite What Wall Street Tells You, Actual Jobs Data Gives Fed No Reason To Slow Tightening

The Wall Street captured financial “news” media blasted us with the usual misinformation in the wake of Friday’s nonfarm payrolls report. The big guns of financial infomercialism blasted us with the notion that the reported gain of 155,000 jobs in November “missed” economists’ expectations. The consensus guesstimate was for a gain of 198,000. Here’s how […]

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Weekly Bear: Here’s How To Predict When The Market’s Magic Hand Will Appear

The Wall Street Journal and other major media outlets reported late Thursday that the stock market reversed from crash to rally because the Fed had changed its tune on interest rate policy. The rationale was that traders started buying because the Fed will no longer stick to a schedule of ¼ point increases in the Fed Funds rate every 3 months. Instead it will take a “wait and see approach.”

As the Journal’s Nick Timiraos reported, the massive intraday rally was all the Journal’s doing. 

“But as they push up their benchmark, they are becoming less sure how fast they will need to act or how far they will need to go, and they want to assess how the economy is holding up under moves they have already made.

How they manage this new, less-predictable approach will depend in large part on the performance of the economy and markets in the weeks ahead.

On Thursday, the Dow Jones Industrial Average tumbled as much as 785 points before paring those losses. The rebound accelerated late in the session after The Wall Street Journal reported on the Fed’s evolving thinking on rates.

Aside from my usual LOL when reading Journal’s typical self-serving nonsense, as a technician I saw immediately why the market rallied when it did and where it did.

The post Weekly Bear: Here’s How To Predict When The Market’s Magic Hand Will Appear appeared first on Lee Adler’s Sure Money.

The Way To Profit From Suddenly Soaring Tax Collections Is Not How You Think

Withholding tax collections soared in the second half of November after a very weak start. Is the surge an anomaly, or is it a sign of a final explosive blowoff in the US economy? Maybe it’s both. We’ll need to watch the data in the next few weeks to see how quickly this surge dissipates. They always do.

Over the years that I have been tracking withholding tax collections I have noticed that just as JP Morgan said about stock prices, “tax collections will fluctuate.” There’s a regular cycle of increases and decreases that typically runs 2 to 4 months. The surge that we just had is much larger than normal, but typical time wise. The next pullback is due to start any day now.

Now, you may be wondering what these withholding taxes tell us about Friday’s employment report, coming soon to a TV screen or web browser near you. Unfortunately, there are too many conflicting signals in the data to draw conclusions about the November jobs report.

With apologies to Hall and Oates, it doesn’t really matter any way. You can rely on the Fed’s less money, you can rely on the less Fed’s money.

With that in mind here’s what we can learn from this data that is absolutely critical to the health of your portfolio.

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The Fed’s Bloodletting Means That You Must Follow This Strategy To Profit

The Fed started shrinking its balance sheet in October 2017.  It euphemistically named the program, balance sheet “normalization.” I call it bloodletting, in honor of the medieval medical treatment for disease.

The Fed’s QE had caused asset markets, including stocks, bonds, housing, and commercial real estate, to become bloated and diseased as prices inflated relentlessly. They floated higher on a sea of the Fed’s newly conjured money.

The Fed pumped that money directly into the accounts of the big shots who make the markets, known as Primary Dealers. The Primary Dealers are appointed by the Fed to be its exclusive correspondents in the execution of monetary policy. They’re also responsible for absorbing a significant portion of the Treasury’s issuance of new bonds, notes, and bills. They mark that paper up and sell it to investors.

The Fed expanded the money supply by buying securities – US Treasuries, Agencies, and Mortgage Backed Securities (MBS) – directly from those Primary Dealers.

The dealers used the money to buy Treasury securities from the US Government. Since they are trading firms, they also used the cash to buy other bonds, as well as stocks, and occasionally exotic derivatives. Those cash injections helped to ignite and promote animal spirits among hedge funds and other massive leverage speculators, along with more conservative investment institutions. We saw the effect in the long running big bull market. The policy of QE ultimately carried stock prices to extremes of valuation only seen at modern major market tops.

The Fed stopped QE in late 2014, but the stock market continued its bull run. That was partly because the Fed was still pumping a little money into dealer accounts through its MBS replacement purchase program.

The Fed Ended Its QE in 2014, But Here’s Why The Bull Rolled On

More importantly, in late 2014 the European Central Bank (ECB) started buying all manner of European government and corporate bonds hand over fist in QE program that essentially took the handoff from the Fed, when the Fed left the field. The same big banks that are Fed Primary Dealers also operate in cahoots with the ECB. That’s how money printed in Europe by the ECB can instantly show up on Wall Street and in US markets. That helped to keep stock prices inflated and rising.

But the Fed went into reverse in October 2017, and the ECB also tapered its buying and will go to zero purchases in December. Its balance sheet will also begun to shrink. More money will leave the worldwide pool of market liquidity, which is just a fancy way of saying money available for investment.

Here’s what that means for the market today, and what you can do to profit while others follow Wall Street to portfolio destruction.

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