Profit From Crisis

A financial crisis like the one we are experiencing now, offers once-in-a-generation wealth building opportunities... if you're prepared. Learn how you can profit from this crisis.

The Most Shorted Stocks

Earlier today, countless investors who still foolishly believe that in the new normal “fundamentals” matter, screamed out in terror when Zillow announced that it would acquire Trulia for $3.5 billion, a 20 percent premium to the Friday close, and were suddenly silenced. The reason: with 38 percent of its float short (making it the 30th most shorted stock in the Russell 2000), this was one of the most dramatic confirmations of what we said was the best trading strategy under the Fed’s artificial capital misallocation regime, namely “buying the most hated names to generate the most alpha.”

In fact, for the benefit of our readers who also wanted to think like a central planner, criminal or five year old (or all of the above combined) we started compiling the list of most shorted stocks some time back in 2012. It was then that we said:

By now it should be no secret that under the New Centrally-Planned Normal, good is great, but worst is far greater. It is therefore no surprise that in the past year, some of the highest returning stocks have been the companies which have seen wave after wave of shorts come in, attempting to ride the underlying equity value to zero, only to see themselves scrambling to cover short squeezes, generated either due to the pull of borrow by an overeager shareholder, or due to bad news not being horrible enough, leading to short covering ramps.

Since then the most shorted stock category continues to make fools out of all those who still believe that under ZIRP things like cash flow, earnings growth, covenant, leverage, or going concern matter (as they experienced most recently today with TRLA), and have outperformed the broader market by several orders of magnitude.

So for all those who still believe that the market has quite a ways to go under the yoke of the Fed’s centrally-planning before it all crashes into a house of rigged cards, here is the list of the most shorted stocks in the S&P 500 and Russell 2000, sorted by descending short interest as a % of float.

First, the S&P 500:
S&P most shorted Q2_1 [7]

And the Russell 2000:

RUT most shorted Q2_1 [8]

Origianally published at Zerohedge

Jeremy Grantham 1999, Jeremy Grantham Today: "Over Next Seven Years, Market Will have Negative Returns"

As an investor It is difficult to sit out a party. I may even be more difficult as a money manager… Do so and you risk losing both clients and assets. Invest in unloved and undervalued assets and you do even worse.

But what is the alternative? Get drunk like everyone else?

We have to admit that this market has gone further, faster, than we thought possible. Bubbles of the current magnitude have never been blown back-to-back in such a short timeframe.

I am not the only one who see things that way. John Hussman has been preaching the same message and so has Jeremy Grantham.

Over Next Seven Years, Market Will have Negative Returns

We encourage you to read an interview of Jeremy Grantham, by Stephen Gandel, senior editor of Fortune: The Fed is Killing the Recovery.

The entire interview is worth reading. But here is one snip that caught our eye.

Fortune: Are you putting your client’s money into the market?

Grantham: No. You asked me where the market is headed from here. But to invest our clients’ money on the basis of speculation being driven by the Fed’s misguided policies doesn’t seem like the best thing to do with our clients’ money. We invest our clients’ money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That’s how we will pay for this. It’s going to be very painful for investors.

It’s well worth reading the entire interview. But we are biased. It supports our own view about market valuations and the Federal Reserve.

Jeremy Grantham 1999

Grantham is one of few who saw things correctly in 1998 and 1999. While others were partying like no tomorrow, Grantham sat things out. In the process, he lost 60% of his asset base simply for not acting like a drunken fool, like nearly everyone else.

Please consider this Forbes Interview of Jeremy Grantham from 2009. The section of most interest pertains to 1999.

Grantham did not lose client’s money. Rather, he lost accounts and assets. Clients who stayed with him did quite nicely.

Unfortunately, it’s a sad state of affairs that investors (speculators really), time and time again chase rising markets and managers with a current hot-hand rather than invest prudently. Then again, that’s precisely what it takes to make a bubble.

This bubble is in a rare class with 1929, 2000, and 2007. But we do not know when the party ends, nor does Grantham or anyone else.

Actually, it doesn’t matter, at least in the long run.

Stocks in general are poised for negative returns for seven years (perhaps longer) once again.  If the party lasts a lot longer, seven might turn into eight or ten, but that will not change the ultimate outcome.

India’s Equity Bull Market: Who foresaw it in October 2008?

India’s Equity Bull Market: Who foresaw it in October 2008?

By Elliott Wave International

This chart tells you everything you need to know about the opportunities that financial forecasting firm Elliott Wave International (EWI) sees in India’s stock market:

  • A multidecade bull market began in Indian stocks in the year 2003.
  • Even in the depths of the 2008 financial crisis, EWI forecast that the bull market would continue.
  • Its forecast has remained valid despite all the political volatility of the past six years in India. In other words, politics has in no way influenced EWI’s analysis.

Most political commentators credit the recent surge in Indian stocks to the electoral victory in May by India’s Bharatiya Janata Party and its charismatic new leader, Narendra Modi.

But Elliott Wave International looks at stock market trends from a different perspective: Its analysts believe that financial trends ebb and flow in waves.

You may have heard the term supercycle. It refers to a long-term boom in a financial market lasting at least several years and as long as several decades.

According to EWI’s analysis, a supercycle began in Indian stocks in the late 1970s, when the BSE Sensex Index began. Within that long-term trend, a smaller boom (which they call a cycle) began in 2003 in India, paralleling similar booms in other emerging markets around the world.

The good news is that India’s cycle bull market still has plenty of years ahead of it. In fact, EWI believes that the biggest opportunities in the cycle boom for Indian and international investors are happening right now.

Want to learn more details? Then you should read the special Interim Report that EWI’s Asian analyst issued on March 23, 2009, to alert his subscribers to the “rewarding long-term opportunity” he foresaw in Indian stocks then. It’s an excellent example of how their analysis can help you to see the bigger picture that those caught up in the news and politics often miss. It will also explain to you the cycle pattern that is driving India’s bull market today — and that will continue to do so for many years.

To get started reading the whole report now for free, all you have to do is become a Club EWI member. There are no strings attached. It’s free for you to learn more about the amazing long-term opportunities in India that only the Wave Principle can help you to take advantage of.

Club EWI is the world’s largest Elliott wave community with more than 325,000 members. Membership is 100% free and includes free reports, tutorials, videos, special events, promotional offers, and access to other valuable EWI resources.

Already a Club EWI Member? Log in.


This article was syndicated by Elliott Wave International and was originally published under the headline India’s Equity Bull Market: Who foresaw it in October 2008?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Stock Market Update: Be Cautious

stock market bear 2014 got off to a rough start for stock market investors. January was a smack in the face as the markets decided to go for a five percent nosedive. But they recovered (again) in February and the indices have gone on to put up new all-time highs.

 

The current bull market has past its fifth birthday. It is on the verge of breaking the top three longest stock market rallies in history. With an increase of more than 150 percent for the Dow Jones index from its March 2009 low, the magnitude and momentum of this bull market is just as qualified for the history books as its duration. That is clearly visible on the following chart.

You can also see that we have seen better and longer bull markets in the past. In the ‘50s, we had a seven year bull market and the bull market of the ‘90s lasted for almost ten years! Just to be clear: a bull market remains theoretically intact as long as an index does not drop by more than 20 percent from a high. There is plenty of upside in other words, but the air does get thinner the higher we go. Naturally, the upward potential has decreased and as history has taught us, at one point the cable on this elevator will snap and we will go down a lot faster than we came up.

Bull-markets-duration-vs-magnitude

The question, of course, is when will the music stop? That has always been the $64,000 question. With regards to valuation, we are already in overtime at the moment. The markets are generously valued at this point, particularly when looking at market capitalization versus GDP (Warren Buffett’s favorite indicator).

Another indicator is also showing warning signs. The Tobin Q ratio measures the total market cap of non-financial listed companies in relation to the replacement value of the assets of these companies. The ratio is a good check to see if the fair value of these companies is deviating from their stock price. Above 1x, this ratio indicates that investors are prepared to pay more for expected performance and goodwill.

Tobin-Q
The above chart from clearly shows that the actual position of the Tobin Q ratio, as well as the adjusted version, has been living north of the 1x level since the fourth quarter of 2013. In the past, namely in the seventies, the current position would have been enough to cause turmoil. Naturally, there are exceptions as evidenced by spike around the dot com boom, but still…

Still, it feels like the 2000-period on the stock market. Just have a look at the chart below, which compares the S&P 500 to the Rydex Asset Ratio (Bears versus Bulls). It’s been 13 years since the ratio dropped this low. Investors are pouring massive amounts of cash into equity funds (long only) and liquidating their short / hedge funds and money market funds. This again is huge warning sign for the markets.

Rydex-Asset-Ratio-2014
That is the problem investors have today. On the one hand, valuation and duration are above average, but that does not necessarily mean that we are at the dawn of a big stock market correction. This stock market rally could last for a few more years and valuations have a lot more room to grow before we can even start talking about a bubble.

That is why vigilance is in order. Indeed, investing is making an estimation regarding the future, taking healthy probabilities into account. As the market rally persists, its effective life span decreases, that makes logical sense. Unfortunately, logic is not always what governs the stock market. Nevertheless we have become more cautious in 2014.

 

Retail Money Market Funds Signal Reversal for the Stock Market

(Video) Retail Money Market Funds Signal Reversal for the Stock Market
Steve Hochberg on the state of retail money market funds vs. stock market capitalization, filmed at the 2014 Las Vegas Money Show

By Elliott Wave International

Editor’s note: The article below is adapted from the transcript of the live presentation above, originally recorded at the 2014 Las Vegas Money Show. It features Elliott Wave International Chief Market Analyst Steve Hochberg. Hochberg is co-editor of The Elliott Wave Financial Forecast, one of EWI’s flasgship market letters. Click here for a free excerpt from Hochberg’s latest issue.

This chart is a picture of retail money market funds as a percentage of market capitalization.

In other words, when people are super bullish, they don’t want to hold any money in money market funds. They want to invest it, right?

Because why hold money aside when you don’t think the market’s going down, when it can be in the market if you think it’s going up?

When people are super bearish, what do they do? They take money out of the market, and they put it into money market funds hoping to wait out what they view as a declining market.

Now look at the upward spikes in this chart.

You can see that there was a high percentage of money in money market funds as a percentage of market cap back in 1982 as the market was bottoming and starting that great bull market.

Shortly after the 1987 crash, people got really scared; and again in 2002 after the market had been down 38%, and also in 2009 after the market declined 58%.

We are now at a new all-time low in the percentage of retail money market funds relative of market cap at just 2.8%. In other words, people are fully invested.

Investors are so optimistic about the future, they see no reason to keep money in money market funds in case the market goes down.

This is a classic warning sign that a reversal is ahead.

For a free excerpt from Steve Hochberg’s latest, July Elliott Wave Financial Forecast, click here. For a limited-time, EWI is giving away free access to a big chunk from the latest issue, complete with specific forecasts, analysis and labeled charts.