The Wall Street Examiner http://wallstreetexaminer.com Get the facts. Thu, 28 May 2015 02:38:51 +0000 en-US hourly 1 Cycle Screening Measures Don’t Confirm http://wallstreetexaminer.com/2015/05/cycle-screening-measures-dont-confirm/ http://wallstreetexaminer.com/2015/05/cycle-screening-measures-dont-confirm/#comments Thu, 28 May 2015 01:47:59 +0000 http://wallstreetexaminer.com/?p=249246 Cycle screening measures strengthened slightly on Wednesday, but not enough to inspire confidence that this uptick will be sustained. This report shows why, and what to look for.

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Whiplash! http://wallstreetexaminer.com/2015/05/whiplash/ http://wallstreetexaminer.com/2015/05/whiplash/#comments Wed, 27 May 2015 21:28:13 +0000 http://wallstreetexaminer.com/?p=249213 The market reversed Tuesday’s losses. What looked like a lead pipe cinch that the 13 week cycle top was in, is now very much in doubt. So far, the upside projection for the 13 week and shorter cycles still looks no higher than 2135-36. A 10-12 month cycle projection of 2185-22-35 by mid July is still in play. A cluster of trend resistance lines 2135-50 still looks formidable. Support is now demonstrated at 2100. Here’s how the outlook shapes up, with the charts and analysis showing you why.

Market Update Pro subscribers (Professional Edition), click here to download complete report in pdf format.

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Productivity Slowing Isn’t Just in the US, and That’s a Problem http://wallstreetexaminer.com/2015/05/productivity-isnt-just-slowing-in-the-us-and-thats-a-problem/ http://wallstreetexaminer.com/2015/05/productivity-isnt-just-slowing-in-the-us-and-thats-a-problem/#comments Wed, 27 May 2015 20:03:12 +0000 http://alantonelson.wordpress.com/?p=2795 This is a syndicated repost courtesy of RealityChek. To view original, click here.

Sometimes I think that RealityChek could easily justify its existence simply as an exercise in granular analysis – a fancy way of saying looking at the details of research findings and various statistics sets. You’re the ultimate judge of course, but consider some revelations from the weeds of some new global productivity data released this week by The Conference Board (and first reported by Chris Giles of the Financial Times). They could speak volumes about the raging debate in the United States about trade, manufacturing, and economic competitiveness.

First a word of warning: Even the snootiest economist will admit that measuring productivity and its changes is one of the discipline’s biggest challenges. And if the U.S. government has its problems compiling definitive statistics in this field, imagine the difficulties faced by governments in developing countries, which simply can’t afford to devote many resources to the task, and where much economic activity is off the books. Then there are the issues created by countries like China, where even the leadership acknowledges substantial books-cooking at all levels of government – especially local.

All the same, the Conference Board report was especially important because it claims that the productivity slowdown being suffered by the United States is showing up all around the world. Globally, the business research group says, labor productivity (output per person hour of work) grew last year at the same weak 2.1 percent pace as 2013. But 2014 labor productivity gains weakened everywhere but India and sub-Saharan Africa, and it fell in Japan.

Even worse, growth in total factor productivity (which includes all inputs into production, not just labor) has been nearly non-existent across the globe on average for the third year in a row, and that’s a worse stretch since 1999. And The Conference Board predicts another drop for 2015 in labor productivity growth – led by low-income countries, where it should be greater, all else equal, due to catch-up effects.

The Board has done a great job presenting tables and charts that describe the picture region-by-region, country-by-country, and even on the basis of high-income versus low-income countries. But for those following American competitiveness issues, and especially the trade and globalization angles, they raise two big questions.

First, although it’s widely contended – including by President Obama – that the United States is gaining competitiveness largely at China’s expense, the productivity numbers say exactly the opposite. It’s true that China’s labor productivity growth has fallen recently from the lofty 9-plus percent average annual growth achieved between 1999 and 2012 – no doubt largely due to increasing wages. But the decrease has only been to a seven percent rise in 2014. In the United States, the decline has been proportionately greater – from annual average gains of 2.4 percent between 1999 and 2006 and 1.3 percent from 2007 to 2012 to 0.5 percent in 2014. Eccch!

Moreover, the Conference Board report doesn’t contain any information about the Chinese productivity numbers that matter most – those for export-oriented manufacturing. That’s where the competitiveness rubber hits the road vis-a-vis the U.S. economy. It’s also where China has benefited enormously from an influx of technology and management expertise from American and foreign-owned multinational companies.

The figures are different for total factor productivity (TFP – which is also called multi-factor productivity), but still no slam dunk for the U.S. comeback meme. In America, this form of productivity increased at an average annual rate of one percent from 1999 to 2006, and 0.2 percent from 2007 to 2012. In 2014, it rose by only 0.1 percent. The comparable Chinese performance was worse. TFP productivity jumped at an annual average rate of 4.4 percent between 1999 to 2006, slowed to an annual average of 2.7 percent in the next six years, and actually fell by 0.1 percent last year. But again, there’s no break-out for export-oriented manufacturing.

Then there’s the Mexico story. It’s also widely claimed that Mexico has profited from China’s faltering competitiveness. The overall productivity numbers are screaming that nothing of the kind should be happening. South of the border, labor productivity has barely budged since 1999, though notable improvement was registered in 2013 and 2014. And the TFP performance has been nothing less than disastrous, with absolute declines (not declining growth, but simple decreases) accelerating since 1999. At the same time, we lack breakouts for both manufacturing (which is overwhelmingly export-led) and for export-oriented manufacturing in particular, which is overwhelmingly dependent on the American market, and which has also received much foreign knowhow.  

Again, given the ongoing uncertainties about productivity measurement, all these figures should be taken with a boulder of salt. But here’s one potential implication no one should like: If there’s no evidence that changes in relative productivity are working in American industry’s favor, and trade policy clearly has not helped (judging from record recent U.S. deficits), then it looks like whatever manufacturing renaissance we’ve seen has been spurred by producers’ desire to be closer to their markets (for which no policy or business practice can take credit) and falling wages (for which no policy or business practice should want to take credit).

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Housing’s Tale of Two Cities http://wallstreetexaminer.com/2015/05/housings-tale-of-two-cities/ http://wallstreetexaminer.com/2015/05/housings-tale-of-two-cities/#comments Wed, 27 May 2015 19:35:31 +0000 http://wallstreetexaminer.com/?p=249196 It was the best of times. It was the worst of times. Allow me to use yesterday’s new home sales report from the Census Bureau to illustrate.

New home sale prices in April rose 8.3% year over year.

New home sale prices are based on current contracts in the survey month so they give us a near real-time take on the state of the market.

This is unlike the ridiculous Case-Shiller data, which at the release date is not only 4 months late relative to the date the sales were actually contracted, but are then smoothed to a 3 month average price. That puts the lag at the release date at 5.5 months. The Case Shiller data released this morning shows average contract prices as of December-January. Who cares about that? It’s summer already. Why does the media waste our time with old stale information on where a 3 month moving average was at the end of March for sales that took place in December?

But the lag isn’t the chief problem.

The Case Shiller (maybe we should call it the Case Chiller) method is not only slow, it suppresses the actual inflation rate of housing. The inflation rate for new homes has been running at a compound annual rate of +7.4% since the price bottom in 2010. That compares with an annual inflation rate of +5.6% during the last bubble. Do these prices represent the “best of times” or perhaps a dangerously inflated bubble?

Bubble or Not- Click to enlarge

Bubble or Not- Click to enlarge

Click to view chart.

Rising at 7.4% per year, new house sale prices today are now 26% above the last housing bubble top in 2006. Over the same period, median household income has risen at the rate of 1.1% per year.  As house prices rise faster than incomes, fewer and fewer households can afford them. That’s what happens in a bubble.

This isn’t the only data showing house prices heating up. National online real estate broker Redfin reports actual contract prices in the largest US metros. Their latest data for April shows the year to year price change accelerating to +6.5% for existing homes. At the same time, Redfin shows listing prices rising 7.8% year over year, as listing inventory remains extremely tight. Inventories have not increased at all since this time last year. Under these conditions, any increase in demand at all will send prices soaring.

I have studied the issue of real time listing prices versus subsequently published sale price data and they have always strongly correlated. I have several years of personal experience selling real estate many years ago, and spent many more years working in the real estate industry, including 15 years as a professional real estate market analyst. Real time listing price trends do accurately reflect price trends and the pace of price increase.  Sellers aren’t stupid. They are raising their asking prices now because their realtors are giving them feedback that they can get those higher prices. They’re probably right.

As long as builders are getting free financing from the Fed, they’ll build expensive houses for those at the top of the income spectrum to whom the benefits of ZIRP and QE also accrue, and those people will continue to buy them. So it is that the census bureau concluded, based on its survey of builders in April, that builders sold 49,000 houses that month, which was a whopping 26% higher than April 2014. They’re selling more houses at higher prices. It is the best of times for them, and for the buyers who can afford those houses.

Meanwhile, the median income household earning $52,000 per year can only afford to buy a house that costs less than $200,000. How many of those houses did builders sell to the millions of US middle income families in April? 9,000 houses… In peak selling season… Nine thousand… A 4 digit number…

True, that’s up 1,000 from last April, but below every year before that. Every year!  The picture speaks for itself. The middle class has become less and less able to afford a new home. A Mr. Wonderful market it ain’t. The American dream is dead to the middle income household.

How Fed Policy Helps The Average Family - Click to enlarge

How Fed Policy Helps The Average Family – Click to enlarge

Click to view chart.

So it is “the best of times” for ZIRP/QE beneficiaries. It is the “worst of times” for median income households and below. This is the Tale of Two Economies that isn’t told in the headline numbers which the mainstream media spew every day. If the foundation is rotting, the tower of interest free debt driven pricing and activity built upon that rotting base will almost certainly eventually collapse.

This time is different from inflationary bubble times that have gone before in one important way. The central banks have become the bubble speculators, betting that they can keep the bubble going indefinitely.  Are you willing to accept that bet?

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JPMorgan’s (NYSE: JPM) Stock Price Faces This $33.8 Trillion Problem http://wallstreetexaminer.com/2015/05/jpmorgans-nyse-jpm-stock-price-faces-this-33-8-trillion-problem/ http://wallstreetexaminer.com/2015/05/jpmorgans-nyse-jpm-stock-price-faces-this-33-8-trillion-problem/#comments Wed, 27 May 2015 18:14:26 +0000 http://moneymorning.com/?p=184775 The JPMorgan Chase & Co. (NYSE: JPM) stock price seems to be breaking out.

Last week, the JPM stock price hit an all-time closing high of $67.01. It's up about 380% since the end of the Great Recession.

But "so what," says one expert. The JPM stock price has some threats coming its way in the near future...

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The JPMorgan Chase & Co. (NYSE: JPM) stock price seems to be breaking out.

Last week, the JPM stock price hit an all-time closing high of $67.01. It’s up about 380% since the end of the Great Recession.

The story is similar for some of the other big players in financials, likeGoldman Sachs Group Inc.  (NYSE: GS) andWells Fargo & Co. (NYSE:WFC). They are up about 300% and 700%, respectively, since their recession bottoms.

JPMorgan stock has broken out from its trading range and is doing well, as many of the big financials are,” Money Morning Capital Wave Strategist Shah Gilani said.

Then he added, “So what?”

You see, what the current JPM stock price shows is that this big bank may well be on the last leg of this long rally.

We saw in the last week JPMorgan settle a lawsuit implicating the big bank – and five others– for manipulating the foreign exchange markets. The JPM stock price has done very little since then, primarily because litigation has proven to be business as usual for the big banks as opposed to a reason for panic.

“We all know the big banks are above the law,” Gilani said. “They are convicted, they admit their guilt (sometimes), and no one goes to jail – they just pay more fines.”

So, this combination of the JPM stock price breaking to new highs and the big bank swallowing yet another penalty with little pain for shareholders would seem to make JPM stock a buy.

But there are still risks. Now’s not a good time to buy JPM stock.

“I’m not an investor in JPM stock because of the near-term future banks face,” Gilani said. “With the prospect of an event that can upend financials in the not-too-distant future – my best estimate is it will start this fall – I wouldn’t touch big banks just because they’ve broken out.”

Here’s what could end up hurting the JPM stock price as early as this year…

How Regulatory Gymnastics Could Hurt the JPMorgan Stock Price

There’s an inherent risk when you buy any investment bank.

While the passage of Dodd-Frank and the implementation of the Volcker Rule have attempted to bring the regulatory hammer down on banks and bar them from taking undue risk through proprietary trading, it’s hardly doing the job. The legislation is so broadly written that big investment banks can still “trade” as long as they call it something else.

For example, a client could come to JPMorgan for a swap deal. JPMorgan could then immediately execute that trade by acting as principal for that client, until the market moves enough for another client to jump in as counterparty and take that position from the investment bank.

As JPMorgan looks for counterparty to that trade, it absorbs cash flow differences. For all intents and purposes, JPMorgan is trading. But the legal team can find a way around it.

“They get around a lot of the proprietary trading stuff that they’re not supposed to be doing by simply saying, ‘I’m not doing it. But I do have the right under Dodd-Frank to make markets and in the process of making markets, if it’s client-related, I can take a position,'” Money Morning‘s Gilani said. “So this is a very gray area.”

All it would take is one big loss for the JPM stock price to take a big hit. The London Whale trade, where JPMorgan reported losses of $6.2 billion starting in April 2012, hammered JPM stock. When all was said and done, the London Whale debacle sent the JPM stock price down 32.4%.

Those are the big, immediate risks with the investment banks. Legislation regulating the banks is heavily influenced by the bank lobby and allows for enough loopholes that JPMorgan and its ilk could find ways to trade around the legal provisions.

And those could amount to big losses that shake investor confidence in the financial system and have a devastating impact on the JPM stock price.

But, there’s an even more concerning prospect on the horizon for big banks…

The $33.8 Trillion Risk to the JPM Stock Price

The best time to buy a big investment bank like JPMorgan is at the bottom of a financial panic – like the one the United States had in 2008. Investors who bought while there was blood in the streets could have pocketed huge gains on this kind of trade – as much as 380% on JPM stock, for example.

Right now there’s too much euphoria surrounding these banks to justify buying them.

But, lurking in the shadows is the $630 trillion derivatives market. This has the potential to upend the financial system and drag the JPM stock price down into “Buy” territory.

Derivatives are financial instruments that track the performance of some underlying asset. The most exotic and most dangerous of these instruments are the ones that track the performance of interest rates, currencies, and credit risk.

These contracts promise big payouts should a currency move dramatically through currency swaps (think Swiss franc) or should a country default on its debt obligations through credit default swaps (think Greece).

“Wall Street bills it as ‘insurance.’ So, they’re telling you, ‘you know what, this is insurance against default, this is insurance against financial…whatever,’ so they’re betting on currencies, interest rates, whatever. Really, these are no different than a Las Vegas-style bet. They’re simply saying the outcome is success or failure,” Money Morning Chief Investment Strategist Keith Fitz-Gerald said. “They’re a massive leveraged bet made on a specific set of economic circumstances that may or may not have a basis in reality.”

The notional value of derivatives sat at $630.2 trillion in the second half of 2014, according to the Bank for International Settlements.

And JPMorgan sits on $63.7 trillion in derivatives against its $2.1 trillion in assets, according to the most recent data from the Office of the Comptroller of the Currency. Of that, $33.8 trillion are swaps – those risky bets on interest rates, currencies, and credit risks. That leaves JPMorgan open to a lot of perils from a lot of different financial instruments should any of these swap positions move against them too violently.

And as Fitz-Gerald said of the next global financial crisis, with derivatives, there’s “No question in my mind that that’s where it’s coming from.”

Bottom Line: The JPM stock price has risen too high to see much more of a breakout to the upside. This leaves it vulnerable to a harsh sell-off should a financial panic ensue. And it’s not just that JPMorgan is in a risky sector; it’s sitting on one of the largest piles of risky derivatives trades among its peers. It may not just be a knock-on effect that hurts the JPM stock price in the event of some kind of derivatives blowout. In fact, JPMorgan could be at the epicenter, further leaving the JPM stock price to a violent move down.

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Disclaimer: © 2015 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.

 

The post The JPMorgan (NYSE: JPM) Stock Price Faces This $33.8 Trillion Problem appeared first on Money Morning

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Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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The Next Iraqi Threat to the Oil Sector… It’s Not What You’re Expecting http://wallstreetexaminer.com/2015/05/the-next-iraqi-threat-to-the-oil-sector-its-not-what-youre-expecting/ http://wallstreetexaminer.com/2015/05/the-next-iraqi-threat-to-the-oil-sector-its-not-what-youre-expecting/#comments Wed, 27 May 2015 14:46:08 +0000 http://moneymorning.com/?p=184760 If you still doubt that geopolitical heat can rattle the oil sector, then we strongly advise you to carefully watch the events that are about to play out.

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If you still doubt that geopolitical heat can rattle the oil sector, I strongly advise you to carefully watch the events that are about to play out.

At the top of my own list is Iraq. Geopolitical matters there continue to worsen. U.S. Secretary of Defense Ashton Carter has just called out the Iraqi military – during a high-profile TV interview, no less – claiming that it lacks the will to fight. ISIS is solidifying positions within marching distance of Baghdad. And the main Iranian general is condemning the United States for “not doing a damn thing” to halt the ISIS advance.

These three developments will have an impact on global crude oil stability and are thereby certain to affect oil prices.

But a fourth situation is about to unfold… with the potential to have a more direct effect on oil.

Here’s my take on what’s going on in Iraq… and what it means for energy prices…

First, let’s go over the three known developments.

1) Carter Slams the Iraqi Military

Earlier this month, Ramadi, a Sunni majority city in Iraq’s Anbar Province about 75 miles west of Baghdad, fell to ISIS forces. The town is in a strategic location on the banks of the Euphrates River. It stands on an important trade route connecting to the Mediterranean Sea, as well as being located on the main road from Amman, the capital of Jordan, to Baghdad.

oil sectorOn Sunday, Defense Secretary Carter conducted an interview with CNN‘s “State of the Union.” “What apparently happened was that the Iraqi forces just showed no will to fight,” he said. “They were not outnumbered. In fact, they vastly outnumbered the opposing force, and yet they failed to fight, they withdrew from the sight, and that says to me, and I think to most of us, that we have an issue with the will of the Iraqis to fight [ISIS] and defend themselves.”

And although the United States has sped up the delivery of arms to the Iraqi forces, Carter said that the Iraqi military itself needs to ramp up its efforts to defeat ISIS. He also announced that he would not currently consider recommendations from military strategists for relocating U.S. forward air controllers to help better identify targets for coalition airstrikes.

“If there comes a time when we need to change the kinds of support we’re giving to the Iraqi forces, we’ll make that recommendation,” he said. “But what happened in Ramadi was a failure of the Iraqi forces to fight”…

2) ISIS Encroaches on Baghdad

The embarrassing retreat of the numerically superior Iraqi security forces when confronted with an ISIS advance into Ramadi disheartened the American personnel who had trained and declared them fit for combat. (I have worked with the senior command here on various assignments over the last several years.)

ISIS continues to flank the capital city from the north, east, and west. But they will not be able to take and hold Baghdad. Neither the West nor Iran will allow that. And that should provide sufficient support for the Shiite-dominated government.

On the other hand, ISIS’s strategy is to continue putting pressure on the city while it entrenches itself in the area that remains its real objective – the border region connecting Syria and Iraq. This is the “caliphate” of their self-proclaimed “Islamic State.”

3) The United States Hasn’t Done a “Damn Thing”

Yesterday, General Qasem Soleimani, the head of the elite Quds forces in Iran’s Revolutionary Guard, leveled a charge of gross inaction against the United States following the fall of Ramadi. His apparent comment (it was actually relayed by others in the Guard) was that the United States had not done a “damn thing” to stop the advance on Ramadi.

“Does it mean anything else than being an accomplice in the plot?” Soleimani reportedly asked, later saying the United States showed “no will” in fighting ISIS. He said Iran and its allies are the only forces that can deal with the threat.

“Today, there is nobody in confrontation with [ISIS] except the Islamic Republic of Iran, as well as nations who are next to Iran or supported by Iran,” he said, according to sources in the Revolutionary Guard.

Most military analysts I know – both in the Persian Gulf region and in Washington – admit Soleimani is the most capable battlefield tactician in the entire Persian Gulf basin. Whether we like it or not, the West has to admit that Shiite militias under Soleimani’s leadership are key to keeping ISIS at bay.

Iran now holds considerable leverage over Iraq. Both nations have Shiite majority populations, Iraq has a Shiite-dominant government, and Soleimani commands Shiite military detachments from his headquarters in Baghdad.

Each of these problems is serious enough to weigh on immediate prospects for crude oil prices.

But there’s another event approaching that will affect oil prices even more directly.

4) The Next Iraqi Threat Is Coming

Kurdistan, the semi-autonomous region in northern Iraq, is again threatening to export oil and natural gas without the approval of Baghdad.

I have advised the Ministry of Natural Resources in the provincial capital of Irbil and was involved in putting together the oil law and model production-sharing agreements the Kurdistan Regional Government (KRG) has offered to outside companies.

These were met with stiff opposition from the central government who claimed only Baghdad can approve exports. An uneasy accommodation has been struck between the two, but it has been fraying of late.

Under the accord, Baghdad is to pay the KRG for exports of Kurdish oil while meeting payments to operating companies in Kurdistan. But the fees have not been forthcoming, owing to Iraq’s acute budget problems and the internal political strife that these days dictates what officials in Baghdad can accomplish.

All of this sets the stage for a major change in Iraqi oil export capabilities. This will have a global knock-on effect for crude prices.

Why You Need to Watch Kurdistan

The KRG legislation and regulations are more profitable for operators than those offered by the central authorities. Baghdad attempted to pressure Western majors by demanding they stop activities in Kurdistan or risk losing contracts elsewhere in Iraq.

Bur despite the huge fields in the south, international leading companies like Exxon Mobil Corp. (NYSE: XOM) opted to take the better terms offered by the KRG.

The stage is now set for the Kurds to act. It may begin over oil proceeds but quickly morph into a full-blown drive for independence. Kurdistan has been biding its time. But the clock on separation is ticking.

The Kurdish population of Kurdistan, eastern Turkey, and northwestern Iran remains the largest indigenous population on Earth without its own country. And Irbil’s fierce militia (the peshmerga) has been defending Kurdish territory from ISIS largely on its own.

The divorce from Baghdad will not be amicable. It will intensify instability and play into the hands of ISIS, the Iranians, and those bent on expanding the unrest regionally.

I’m keeping an eye on all of this and will let you know of any important developments.

Bubble, bubble, oil and trouble: A few months back, when prices were pushing lows of $40 a barrel, there was widespread talk of a wave of bankruptcies coming in the oil patch. The picture is now better, given a recovery in crude prices. But there is another shoe about to drop in the ongoing fight by smaller companies to survive. Here’s what to expect from this disaster…

 

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Disclaimer: © 2015 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.

 

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The Stock Market Crash of 1929 http://wallstreetexaminer.com/2015/05/the-stock-market-crash-of-1929/ http://wallstreetexaminer.com/2015/05/the-stock-market-crash-of-1929/#comments Wed, 27 May 2015 14:26:42 +0000 http://moneymorning.com/?p=184750 This is a syndicated repost courtesy of Money Morning - We Make Investing Profitable. To view original, click here.

stock market crash of 1929

We begin our stock market crash history series with the most devastating in terms of duration and extent: the Stock Market Crash of 1929.

Black Tuesday, Oct. 29, 1929, marks the crescendo of this crash. On that day alone, the Dow dropped 12% (30 points) and 16 million stock shares exchanged hands – although for some investors, there were absolutely no buyers to sell to.

When the dust settled, more than $30 billion (roughly $350 billion in today’s dollars) in wealth had been obliterated.

wall street crash of 1929But one thing that made the Stock Market Crash of 1929 truly devastating was that it drew out far longer than a single day…

In fact, the second-, third-, and fourth-worst stock market crashes (as measured by daily percentage losses) inDow Jones Industrial Average history all occurred in 1929.  Even the sixth- and 10th-worst crashes, on Aug. 12, 1932, and July 21, 1933, stem from volatility in the wake of the Wall Street Crash of 1929.

The Dow sank a total 48% from September to November 1929 and kicked off the 10-year-long Great Depression. It lost another 86% from April 1930 to July 1932 in the crash’s aftermath.

Behind the Wall Street Crash of 1929 was a phenomenon that may be more familiar than you’d like…

What Caused the Stock Market Crash of 1929?

A speculative bubble – in the manufacturing industry – took hold in the 1920s.

In the first six months of 1926 alone, combined net profits of 536 manufacturing and trading companies increased 36.6%. The Dow Jones gained more than 20% between June and September 1929. The Roaring Twenties were riding high on encouraging share prices and the end of World War I. The stock market increased 10-fold in nine years.

wall street crash of 1929

“Stock prices have reached what looks like a permanently high plateau,” popular American economist Irving Fisher told the public three days before the Stock Market Crash of 1929.

“Given the chance to go forward with the policies of the last eight years, we shall soon with the help of God, be in sight of the day when poverty will be banished from this nation,” then-President Herbert Hoover said months before the crash. “We in America today are nearer to the final triumph over poverty than ever before in the history of any land.”

His second-term presidential campaign in 1928 ran on the idea there would be “a chicken in every pot and a car in every garage.”

People poured wealth into the market, even borrowing money to invest. In 1929 before the crash, two out of every five dollars a bank loaned were used to purchase stocks. More than $8.5 billion was out on loan – more than the entire amount of U.S. currency in circulation at the time.

But what (falsely) goes up must come down – and it did so, with theatrical tragedy…

The Grave Fallout of the Stock Market Crash of 1929

Legend has it famous American businessman Joseph “Joe” Kennedy stopped by a shoeshine shop in the winter of 1928 on his way to his Wall Street office. The shoeshine boy took Kennedy’s tip money and remarked he was going to invest it in Hindenburg stock.

In years following the crash, Kennedy claimed he survived it because he’d predicted the whole thing. “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over,” he thought to himself. In 1929, Kennedy’s fortune was around $4 million (equivalent to $54.9 million today). By 1935, it had increased to $180 million (equivalent to $3.1 billion today).

Indeed, the highly speculative stock prices began to decline after the market’s peak on Sept. 3, 1929.

“We are reaping the natural fruit of the orgy of speculation in which millions of people have indulged,” Albert Wiggin, president of Chase National Bank, said at the time. “It was inevitable, because of the tremendous increase in the number of stockholders in recent years, that the number of sellers would be greater than ever when the boom ended and selling took the place of buying.”

1929 wall street crashOn Oct. 18, markets fell and a panic set in. In the last hours of trading on Oct. 24, “Black Thursday,” the market lost 11% of its value at opening bell on record-breaking high volume. Banks and investment companies attempted to stem the bleeding by buying up huge blocks of shares, but another giant 13% drop hit the following “Black Monday,” Oct. 28. Shares of mainstay companies like U.S. Steel and General Electric Co. (NYSE: GE) began to tumble. Brokers slept in their offices.

The next day, “Black Tuesday” (Oct. 29), the Dow slid 12%. The volume traded that day – a record 16 million shares and 15,000 miles of ticker tape – was not seen again for almost 40 years. Brokers committed suicide.

On Oct. 30, there was a small rebound, but after that the market fell every day until Nov. 13.

Stock prices wouldn’t reach pre-crash levels for 25 years.

Of course, we could take a lesson in speculation from the Stock Market Crash of 1929. But then again, the wisdom was around even before the crash.

“There is nothing new in Wall Street,” classic 1923 investing tome Reminiscences of a Stock Operator reads. “There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”

Unheeded then, unheeded in 2008, and sure to go unheeded in the future.

The Stock Market Crash of 1929 was the first in our series of the greatest stock market crashes in U.S. history. Stay tuned to www.MoneyMorning.com for our next installment, and tweet the author @TaraKateClarke with any comments.

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The post The Stock Market Crash of 1929 appeared first on Money Morning

Reposted with permission

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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Gold Tests Believers http://wallstreetexaminer.com/2015/05/gold-tests-believers/ http://wallstreetexaminer.com/2015/05/gold-tests-believers/#comments Wed, 27 May 2015 13:15:52 +0000 http://wallstreetexaminer.com/?p=249127 These are the times that try gold investors’ souls. Gold has established new downside projections for the 13 week cycle and the 9-12 month cycle.

Click here to download complete report in pdf format (Professional Edition Subscribers).

Try the Professional Edition, including this Precious Metals update risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information or to join now.

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Home Prices Grow At 5.04 Percent YoY As Wage Growth Remains Stagnant (Mortgage Purchase Applications Have Already Peaked) http://wallstreetexaminer.com/2015/05/home-prices-grow-at-5-04-percent-yoy-as-wage-growth-remains-stagnant-mortgage-purchase-applications-have-already-peaked/ http://wallstreetexaminer.com/2015/05/home-prices-grow-at-5-04-percent-yoy-as-wage-growth-remains-stagnant-mortgage-purchase-applications-have-already-peaked/#comments Wed, 27 May 2015 12:36:32 +0000 http://confoundedinterest.wordpress.com/?p=41656 This is a syndicated repost courtesy of Confounded Interest - Online Course Notes For Financial Markets. To view original, click here.

Ah, another housing report where homes become even more UNaffordable for the average American.

According to Case-Shiller, home prices rose 5.04% YoY in March while wages are growing at only 2.1% YoY.

cswages0527153

The leader in house price growth? San Francisco. In last place? Washington DC and … Cleveland.

city index

The problem for the average American household is that mortgage purchase applications have likely peaked for 2015.

Mortgage applications decreased 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 22, 2015.

mbastats052715

The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index was essentially unchanged compared with the previous week and was 14 percent higher than the same week one year ago.

mpawageslll

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.07 percent from 4.04 percent, with points increasing to 0.35 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Rising interest rates are not likely to help.

big-sister2015

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

This is a syndicated repost courtesy of Confounded Interest - Online Course Notes For Financial Markets. To view original, click here.

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Crunch Time Timeline for Greece http://wallstreetexaminer.com/2015/05/crunch-time-timeline-for-greece/ http://wallstreetexaminer.com/2015/05/crunch-time-timeline-for-greece/#comments Wed, 27 May 2015 10:12:00 +0000 http://wallstreetexaminer.com/?guid=f48b6c254c6abc0daee788bda508f973 This is a syndicated repost courtesy of True Economics. To view original, click here.

Crunch time continues for Greece. Here is the schedule of the upcoming ‘pressure points':

Source: Citi

And an update to the Greek ELA increases: +EUR200 million on May 21st, to EUR80.2 billion with remaining available cushion of just EUR3 billion. Note: earlier ELA extensions are summarised here: http://trueeconomics.blogspot.ie/2015/05/15515-greece-on-wild-rollercoaster-ride.html.

Wall Street Examiner Disclaimer: The Wall Street Examiner reposts third party content with the permission of the publisher. I curate these posts on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. No promotional consideration has been offered or accepted. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler and no endorsement of the content so provided is either expressed or implied by our posting the content. Some of the content includes the original publisher's promotional messages. The Wall Street Examiner is not familiar with the services offered and makes no endorsement or recommendation regarding them. Do your own due diligence when considering the offerings of third party providers.

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