Asian markets declined after the Fed announced a pullback on its bond-buying program, the second time in six weeks. The WSJ’s Deborah Kan speaks with Jake Lee about the ripple effect it has had on global markets.
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BRIEF-Nomura to partner with UK-based Intermediate Capital - Nikkei
http://currenteconomictrendsandnews.com/wp-content/uploads/2013/11/c345e__p-89EKCgBk8MZdE.gif
Nov 21 (Reuters) – Nikkei: * To partner with UK-based Intermediate Capital to enter mezzanine finance in
japan,pair will form unit as early as 2013-Nikkei * Nomura,intermediate capital will each contribute JPY10 billion to a fund that
will also raise money from life insurers and pension funds-Nikkei * Source text -* Further company coverage
It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water.
Gee, we’re all on one side of the boat now–long the S&P 500, NASDAQ, Dow, Eurozone stocks, the Nikkei, not to mention rental housing, junk bonds, bat quano, ‘roo belly futures and the quatloo–basically every “risk-on” trade on the planet–is that a problem?
The conventional (and convenient) answer is “nah–stocks can only rise from here.”So what if market bears have fallen to 15% or less? So what if 85% of investors are on the same side of the boat? You’d be nuts to leave the winning side, the trend-is-your-friend side, the “don’t fight the Fed” side, the side with all the “smart money.”
It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water. With the sea remarkably calm (i.e. no waves of turbulence or volatility), the fact that the boat is overloaded doesn’t seem dangerous.
But once the sea rises even a bit and water starts lapping over the gunwale, the “guaranteed safety” of the bullish trade might start looking questionable.
When the boat takes on water quicker than anyone believes possible and capsizes, it will be “every punter for himself.” But few longside punters are wearing lifejackets.
This is all Investing 101: be wary of extremes of euphoria and confidence and being on the same side of the trade as everyone else. Yet everyone continues adding to their long positions without adding portfolio protection (puts, etc.):
Three indicators suggest this move will reverse shortly, either in a “healthy correction” or a reversal of trend–which one cannot be determined until the downturn is underway.
The rapid rise of the market has traced out a bearish rising wedge. This pattern usually leads to some sort of correction. The MACD histogram is divergent, dropping to the neutral line as the SPX has soared ever higher. Lastly, price has pulled away from both the 50-day and 200-day Moving Averages, suggesting the rubber band is remarkably stretched.
Round-number attractors are close at hand. The SPX at 1798 is two measly points from the round-number attractor of 1800, and the Dow at 15,961 is a coin-toss away from its round-number attractor of 16,000. This level will invite great cheering (“new all time high,” never mind adjusting for inflation) and also present an opportunity for the imbalanced boat to capsize.
Even more astonishing, the crowd is also betting on volatility declining from extreme lows. Look at the put and call options on the VXX, a security that tracks the short-term volatility of the VIX: at the money December calls (bets volatility will rise by December 20) number 311 while puts (bets volatility will decline some time between now and December 20) number 11,265.
Hey, you 311 bears! Join us 11,265 longs on the guaranteed winning side of the boat! Uh, thank you for the kind offer, but no thanks. Though the uncrowded side is uncomfortably above the water at this point, with 11,265 fattened Bulls on the side close to the waterline, the few on this side are less likely to be trampled when physics trumps psychology.
Hey all you PhDs in Behavioral Economics: perhaps you could investigate the “how many angels can dance on the head of a pin?” nature of this psychological conundrum: the market can only do what few expect of it, so if everyone is looking for bubbles, there can’t be any bubbles. But what else do you call a market that rises 10+% in a mere 6 weeks?
In other words, if people are looking at the market and realizing it is dangerously close to capsizing, then it can’t capsize because the market can only capsize if nobody expects it. The absurdity of this argument is revealed by turning it around: if Bulls confidently expect the market to keep rising, then how can it rise when everybody expects it to rise?
The answer to the question “how many angels can dance on the head of a pin?” is the same as the answer to the question, “How many Bulls can crowd on one side of the trade without capsizing the boat if there are 311 Bears on the other side?” The absurdly concise answer is 11,265–at least for now.
TOKYO, May 9 (Reuters) - Japan"s Nikkei share average is expected to rise to new five-year highs on Thursday buoyed by a record finish on Wall Street and the European market, while Toyota Motor Corp is likely to be in focus after reporting its full-year results. Market players said the Nikkei was likely to trade between 14,250 to 14,500 on Thursday, after ending up 0.7 percent to 14,285.69 on the previous day. The index shot up to an intrasession peak of 14,421.38 on Thursday, its highest level since June 2008. Nikkei futures in Chicago closed at 14,370, up 0.8 percent from the close in Osaka of 14,260. "Japanese stocks have already been high and some investors have expressed concern of a short-term pull-back, but there"s been renewed investor appetite after both U.S. and European stocks hit record highs," said Kenichi Hirano, a strategist at Tachibana Securities. The S&P 500 closed at an all-time high for a fifth day on Wednesday. In the currency market, the euro rose to a more than two-week peak against the yen on Wednesday as positive German data eased fears about the euro zone"s largest economy. After a brief pause, the Japanese market has resumed its record run in recent sessions, underpinned by central bank and government policies to revive growth and as the U.S., Germany and China broke a run of soft data with some upbeat economic reports. Analysts said the weak yen trend is likely to remain a prop for exporters, especially euro-sensitive stocks such as precision equipment shares and automakers like Mazda Motor Corp . "The dollar-yen level is hovering at the same level and is not providing fresh surprises. But if the euro stays above 130 yen for the day, the mood should remain positive," said Hiroichi Nishi, assistant general manager at SMBC Nikko Securities. On an individual stock basis, market participants said that Toyota, whose ADRs rose more than 3 percent, will likely attract buying despite its conservative profit forecast for the year through March 2014. "The company based its dollar-yen assumption at 90 yen, which is very, very conservative. If the company had based it at 95 yen, the forecast would have been impressive," said Tachibana"s Hirano. The dollar last traded at 98.90 yen, while the euro was at 130.12 yen. > S&P 500 ends at record for 5th day; Groupon up late > Euro jumps as upbeat German data curbs ECB easing talk > U.S. bonds make small gains as yields draw buyers > Gold up over 1 pct on dollar drop, physical demand > Oil ends mixed, Brent/WTI at narrowest in 2-plus years STOCKS TO WATCH --Toyota Motor Corp Toyota more than doubled its fourth quarter net profit, as the yen"s depreciation helped the automaker export more profitably and U.S. sales of the Avalon sedan and Tacoma truck were strong. --Toshiba Corp Toshiba forecast a 34 percent jump in operating profit for this fiscal year, boosted by strong sales of its flash memory chips, but the outlook fell short of market expectations as it struggles to turn around its TV division. The company separately said that demand for memory chips were still strong in the first quarter of this business year ending March 2014, while prices would remain steady. --Resona Holdings Inc Resona plans to finish repaying the 871.6 billion yen ($ 8.8 billion) in public funds it still owes the government in five years, the Nikkei business daily said on Thursday. 