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Monday, February 25, 2013

Misc. stuff

These are a few interesting things I ran across lately.  First up is the Goldman Sachs Global Leading Indicator (GLI).


The GLI seems to be headed to slowdown mode rather suddenly.  This indicator is in sync with the sudden move down in the industrial metals.  Of course it is possible that Goldman's big client's saw this chart and sold the metals down, LOL.  There does seem to be a risk of more slowing again.

This is an interesting chart for buying climaxes.


From the article:
My next concern is we’ve seen a consistent surge in buying climaxes the past several weeks.  You can read what buying climaxes are here, but just be aware that we tend to see clusters of these near major tops.  A buying climax occurs when a stock makes a new 52-week high, then closes lower on the week.  They are said to be smart money selling and I’ve had a nice track record using them.  Here is something I wrote in early October on them, right before a big drop.

We can see in the chart above the number of buying climaxes has exceeded the high number set last spring before the near 10% pullback.  It is way higher then we saw last fall before that smaller pullback.  I do not have a source for the number of buying climaxes, but this is something I first read about in 2000.  It does have a good track record historically for indicating important tops. 

This is a rather ominous statistic for Europe I think.  Check this out.

Banks in the euro area amassed the largest amount of bad loans ever, the economic auditing firm Ernst & Young revealed in a study released on Monday.
It estimated that credits to the tune of 918 billion euros ($1.23 trillion) were currently not being paid back at all or could only partly be paid back, amounting to 7.6 percent of all loans granted in the eurozone.
In Spain, 15.5 percent of loans fall into that category, while it's 10.2 percent in neighboring Italy. Source

Is it just me or is $1.23 trillion a lot of money.  I think the subprime problem was on the order of $250 billion.  It is interesting that I keep hearing people talking about tail risk being diminished this year.  However, none of the problems in existence have actually been solved.  They have only been talked to death, LOL.  This seems like one whale of a tail risk to me just waiting for the right moment to shock everybody. 

Here is a look at junk bond yields.


Junk bond yields are at record lows.  I think this is one source of worry for the FED.  The minutes the other day talked about QE may be encouraging excessive risk taking.  I would say that is what this chart is indicating.  They talk in the media about low default rates.  Well duh.  When people are flooding money into this sector just about any junk company can sell a bond.  No money, no worry.  Just sell another bond.  No need to default.  This will certainly lead to huge numbers of defaults somewhere down the road when the flow of funds dries up and companies have to repay.

I have the feeling the low volatility environment we have been seeing will not last all year.  Many OECD countries are in contraction at the moment.  I think people have a false sense of security that is unjustified.  We are likely in a global recession which leads me to believe the tail risks are higher then any other year since 2008.  I guess we will see.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.