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The Wall Street Greek blog is the sexy & syndicated financial securities markets publication of former Senior Equity Analyst Markos N. Kaminis. Our stock market blog reaches reputable publishers & private networks and is an unbiased, independent Wall Street research resource on the economy, stocks, gold & currency, energy & oil, real estate and more. Wall Street & Greece should be as honest, dependable and passionate as The Greek.

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Tuesday, December 31, 2013

Sell Stocks on Likely January Ill-Effects

Stocks were up stupen- dously in 2013, and the gains were widespread, so I think this year we could feel a void as a result. The January Effect may instead yield the ill-effects of a previously stellar market performance. With little or no fuel to sustain stock buying, the market will more likely see the selling of shares on pushed forward tax gains in January. The actionable advice here, therefore, is to sell stocks as I also previously suggested in the article, Sell the SPY on High.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

stocks performance 2013

The charts of the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) all show the amazing performance of the stock market this past year. The gains were astounding, as you can see via the table below. Netflix (Nasdaq: NFLX) led all S&P 500 stocks higher, appreciating roughly 298%. The best performing stock sector was the Consumer Discretionary Sector, as evidenced here by the 41% gain of the XLY security. Still, the worst performing sector also rose this year. It was the telecom sector, and the performance of the iShares U.S. Telecommunications ETF (NYSE: IYZ) still managed 22.5% appreciation.

2013 Performance
SPDR S&P 500 (SPY)
SPDR Dow Jones (DIA)
PowerShares QQQ (QQQ)
Consumer Discretionary Sector SPDR (NYSE: XLY)
iShares U.S. Telecommunications ETF (NYSE: IYZ)
Netflix (NFLX)

That’s widespread appreciation, and it portends a less than stellar January, if not an outright downslide. Just 38 stocks from within the S&P 500 depreciated on the year. So where then will the funds from tax loss selling flow to fuel a January Effect? I believe that whatever fuel exists will be exhausted early in January, or has already been exhausted in late December’s Santa Claus Rally.

Thus, stocks are in my opinion lacking positive seasonal catalyst in January, and given that stock market paper gains are aplenty, tax gain profit taking might occur. Such gains taken now instead of the end of 2013 allow investors to pay taxes in 2015. It’s a cash flow factor that leads me to suggest that the stock market is more likely to decline in early 2014 than it is to rise. Thus, I suggest investors act preemptively and sell the market and especially richly valued shares like Twitter (Nasdaq: TWTR) now. I suggested as much about Twitter and also about Alcatel-Lucent (NYSE: ALU) in recent articles published elsewhere.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Saturday, December 07, 2013

Why Real Estate Shares Fell When Stellar New Home Sales Were Reported

New Home Sales were reported running at a stellar annual rate in October, and yet the shares of homebuilders and other real estate relative stocks fell sharply on the day of the report. Here’s why…

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Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Real Estate Stocks

Real Estate Relative Stock
12-04-13 Performance
SPDR S&P Homebuilders (NYSE: XHB)
PulteGroup (NYSE: PHM)
K.B. Home (NYSE: KBH)
D.R. Horton (NYSE: DHI)
Toll Brothers (NYSE: TOL)
Hovnanian (NYSE: HOV)
Bank of America (NYSE: BAC)
Annaly Capital (NYSE: NLY)

Judging by the exaggerated underperformance of real estate relative stocks last Wednesday you might have thought it was a bad day for housing data, but it was not. While the S&P 500 was down just fractionally on the day, homebuilders, housing lenders and dealers in mortgage securities, among a large group of real estate relative stocks, declined sharply. The nation’s largest builder, PulteGroup (NYSE: PHM), led the way in its decline of 2.4%. The nation’s most important mortgage lender, Bank of America (NYSE: BAC), was off 1.3%. Annaly Capital (NYSE: NLY), the widely held mortgage REIT, dropped 0.6%. It was a bad day all around; but was it really?

New Home Sales were reported running at an annual pace of 444K in the month of October. That was well above the also just reported September rate of 354K (late due to government shutdown). Economists had foreseen a strong level of sales for October, but the consensus forecast was still short of the amazing actual result by 19K. The Midwest and South showed the best rate of increase over September, but every region of the nation reported impressive double-digit growth. Don’t forget also that the Northeast and West are the two largest and established real estate markets, so growth in new home sales are harder to come by within them.

Growth in October over September 2013
United States

So if the industry relative data was strong, the reader must be wondering why real estate relative stocks collapsed on the day of the report. You can look to the Beige Book for your catalyst. The market interpreted the Federal Reserve report, which was also released on Wednesday, in a way that would threaten the path of real estate market development. It was not because of a failing economy, though, but rather due to a steadily improving one. The concern among real estate sector investors is that the Federal Reserve will keep to its promise to taper back asset purchases if the economy continues to show significant enough improvement. That means less demand for mortgage backed securities and higher mortgage rates. Investors found in the Beige Book Report what seems to fit that perspective, and so they sold off the housing and real estate relative stocks despite the strong new home sales data.

Interest rates increased sharply on the day, and with them, mortgage rates. You can see in the daily Treasury Rate data that 30-year treasury rates increased by 6 basis points on Wednesday December 4th alone. Likewise, you can see within the weekly mortgage rate data that rates for 30-year fixed rate mortgages were up 11 basis points through the week ended December 4, 2013. When the news is reported for this week, it will likely show even higher mortgage rates.

Higher mortgage rates are bad news for a real estate sector that has desperately needed the government’s support to find traction post the real estate collapse. Paying due credit to the latest and greatest Employment Report, the economy still seems burdened by a secretly still unemployed sector of America, which is now found within the pool of people collecting disability or welfare support or off the radar completely after having come out of the workforce count. Thus, housing enthusiasts have rightfully lost some optimism. The pool of those qualified to get a mortgage is likewise stifled somewhat by a still careful lending sector that has the watchful eye of regulators upon it now.

With this perspective, we can understand now why housing relative stocks declined on a day when new home sales ran up to a much better annual pace. From this analyst’s perspective, the taper will come relatively soon, and it will still result in higher interest rates and a drag on the businesses of these real estate companies and also their stock shares. So in my view, last Wednesday offered us a glimpse into what is to come.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Friday, December 06, 2013

Super Jobs Report Blows Away Fed Fear

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November Unemploy- ment 7.0% from 7.3%, Nonfarm Payrolls +203K

The November Employment Situation Report showed sharp improvement in the labor situation. Unemployment improved by far more than the economist community forecast, as did the nonfarm payroll figure. Private nonfarm payrolls, which should be the driver of job growth in America, led the way with an increase of 196K net new jobs created. Visit the blog for more like this.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Jobs Report

Prior Mos.
Prior Revised
Unemployment Rate

Nonfarm Payrolls
Private Payrolls
Ave Hourly Earnings
Ave Workweek
34.4 hours


The news was received well by the market. It was a blowout report, meaning that it was so good on the surface that it reassured the investment community that a Fed taper might even be appropriate. Investors are concerned that a premature Fed tapering of asset purchases might stifle a still needy economy. But this data seems to say the economy is standing strongly on its own two feet, and so there is reduced fear of a premature action.

December 6 AM Change
SPDR Dow Jones (NYSE: DIA)
PowerShares QQQ (Nasdaq: QQQ)
SPDR Gold Shares (NYSE: GLD)
iShares Silver Trust (NYSE: SLV)
PowerShares DB US Dollar Bullish (NYSE: UUP)
Bank of America (NYSE: BAC)
Ford (NYSE: F)
Apple (Nasdaq: AAPL)
Google (Nasdaq: GOOG)
Wal-Mart (NYSE: WMT)
Amazon.com (Nasdaq: AMZN)
Darden Restaurants (NYSE: DRI)
Health Care Select Sector SPDR (NYSE: XLV)
MetLife (NYSE: MET)
SPDR S&P Homebuilders (NYSE: XHB)

As you can see in the table above, stocks are broadly higher Friday morning, save Apple (AAPL) curiously enough. The table here offers a good representation of much of the market in my view, including areas where better labor data would show up more strongly. This is exaggerated in the insurance firms like MetLife (MET), because their assets include other financial securities (it’s like a derivative). The consumer sensitive stocks are well-represented here, with the two major retailers online and on the street in Amazon.com and Wal-Mart included. Darden Restaurants’ casual dining locations are a step up from the McDonald’s (NYSE: MCD) of the world, and benefit when the economy improves.

It’s interesting that gold and silver are higher along with the rest of the market and the dollar. What we have is one of those days when betas align and the tide takes all ships with it. It happens when news is good or bad enough to affect all capital flows into investment assets.

The market could use more economic data like this. Blowout figures that ease investor concern about the Fed taper allow the Fed to appropriately hedge against inflation without hindering economic growth. I started this article with the words telling how good the report was “on the surface,” and unfortunately that accurately implies that below the surface, they remain imperfect. The U-6 figure improved nicely this past month to 13.2%, and you can bet that news is helping to ease investor concern about the missing unemployed. You’ll recall that the U-6 figure reclassifies part-timers and the marginally attached to the labor force, considering them like unemployed; it is the underemployment rate. However, it still misses important changes in the labor force, when people disappear from the radar because they are now collecting disability checks; or if they are unemployed and undocumented; or operating in the black market. Still, the improvement in the U-6 from 13.8% to 13.2% is enough to clear away investor concern about this issue.

No matter what, the investment community is likely to eventually take Fed tapering badly, at least initially. Still, the more support we can get from the economic data, the more confident we can be in our outlook. Risk acceptance follows along with continued investment in equities. If the data keeps coming in strongly, the reaction of the market when Fed tapering finally starts will be shorter lived than if Fed tapering started before such supports were in place. In other words, we'll be able to stand on our own two feet and the stock trend will continue higher.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Wednesday, October 16, 2013

The Diabolical Deadline of the Rating Agencies

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Panic artists drummed up fear as September ended and the government shut down. It closed, but the sun rose the next day and stocks stayed put. Then people like me started warning of the debt ceiling deadline, suggesting that it was the true point of no return. But one deadline is at least as potent as that drawn by the U.S. Treasury for October 17th, but more dangerous because of its stealth nature. It is very likely the reason why Congressional leaders convened last Thursday to work towards a short-term solution. It is the deadline vaguely drawn, gray and opaque, the one set down by the credit rating agencies.

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Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

You see, with one fell swoop, Standard & Poor’s, of McGraw-Hill (Nasdaq: MHFI), or Moody’s (NYSE: MCO) or Fitch could easily shock the market. If two of the above were to downgrade the sovereign rating of the United States, the effect could be as bad as a default on payments to our creditors, if not worse. The impact would be global too and I expect quite apocalyptic. So I curiously wonder here if that biblical demon of old referred to as the Anti-Christ in the Book of Revelations might in fact be Standard & Poor’s and its fellow rating agencies. Unfortunately, such impossible word play seems to gain disturbing credence when we recall the fact that on March 6, 2009, the market index by the same name stopped at an intraday bottom value of precisely $666. It was the low point of the financial crisis, but was it also meaningful for “the one who has understanding?”

You’ll recall the uproar when S&P downgraded America’s credit rating last year; it was for the very reason I speak of here. Yet, there was no catastrophic impact to our nation’s borrowing capacity or to interest rates. Why is that? Because unless two or more rating agencies cut America’s AAA credit rating, all the mutual funds and other funds bound by charter to own triple-A credits would not have to sell their core holdings of U.S. treasuries; nor those of municipalities which would be overcome by the fall of the parent nation’s rating; nor those of the corporations which run out of the land of the free. Neither would our nation need to offer a more appealing yield to sell debt, and so raise all interest rates and cut the dollar at its knees. But if two rating agencies do act in concert this time around, then we may be done for.

I was not surprised Tuesday to hear Senator Reid warn that the rating agencies were very likely already at work on a plan of action. The Democratic Leader indicated that a downgrade could come as early as Tuesday evening. Indeed, Fitch later warned that it might cut our AAA rating. My friends, if this scenario is about to play out, we as a people should be taking it as seriously as we would nuclear missiles in the air. Actually, I believe we should be taking it even more seriously than we would that nightmarish plot. I would go so far as to call it treasonous to allow this situation to reach the midnight hour, and I would place those at fault into custody for such an inexcusable underestimation of risk. Ignorance is no excuse here; an appropriate anomaly might be a clumsy government representative accidentally hitting the red button. How would he pay for that mistake? Wouldn’t it be too late anyway? If we can stop the failure before it occurs, we should. The President must intervene in this case, and ensure the government does not ruin our nation.

The impact to our economy and to the global economy of an undermining of the reserve currency and of the risk-free rate, the basis of all security value, is worse than a nuke touching down. Interest rates would rise for everyone in America, and for all those people living across the world in nations holding U.S. debt and the dollar as their reserve currency. This covers every developed nation in the world and everyone else as well. Only those nations rich in alternative currencies like gold and silver would benefit from such a global disaster, because as the buying power of the dollar is destroyed, the value of those precious metals, mankind’s natural reserve currency, would rise. This is why today, as the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) fell, the SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust (NYSE: SLV) gained ground.

The words read, “This calls for wisdom: let the one who has understanding calculate the number of the beast, for it is the number of a man, and his number is 666.” These times call for patience and tolerance from the leaders of this nation and also from the rating agencies. However, from the people, the times call for activity not passivity. I advise every person living in this nation and every global leader to contact those American Congressmen holding up the simple raising of the debt ceiling for the sake of other partisan interests; or better yet, to stand at their doorsteps so that they understand that the levity with which they are handling this matter is intolerable. I am not the only voice who believes the consequences of a failure here may be irreparable for America; nor am I alone in my view that it could also be devastating for civilization. But the time for chatter and debate has passed, and the time for action has come. If no resolution occurs immediately, the President must intervene for the sake of reason.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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Thursday, October 10, 2013

Australian Housing: At The Edge

The Gold Coast of Australia is blessed with so many wonderful attributes: miles of sandy beaches; clean air and skies; with clear, fresh water; lush vegetation in rich soil that will produce fine fruits and vegetables in abundance; and with year round sunshine and ample rain. The climate is warm in winter, a bit hot in summer driving the population to the sea breezes of the coastal beaches. The area is Lucky, much as Australia has been lucky.

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The global financial crisis affected all parts of the world. In order to avoid a perceived systemic collapse, the major economies coordinated their efforts to stabilize and re-kindle commerce. Europe and America chose to pour vast sums of capital into the financial system to stabilize the banking system. The Federal Reserve expanded its reserve balance by over $2 trillion, plus trillions more were sent to foreign banks and financial institutions as well as sovereign nations in the form of currency swaps to help liquify and backstop a failing system. In Europe and Great Britain, huge sums of euros and sterling were used as enormous sovereign debt was created to flood the markets with liquidity in a desperate attempt at solvency. In the case of Germany, the nation expanded it's debt to prevent entire nations partners from collapsing; bonds were purchased and loans extended to basically bankrupt nations. Financial assets were saved for the institutions.

The US Treasury and Federal Reserve not only shored up the balance sheets at major US banks, but also underwrote the havoc created by the meltdown in US housing: guaranteeing loan losses at Fannie Mae and Freddie Mac along with guaranteeing failed lenders. Foreclosures and short sales of US housing created a black hole where capital disappeared in the destruction and deflation of asset prices created by the clearance sale of US homes, which demanded increasing amounts of capital. The central banks of Europe and America poured liquidity into the financial system to offset the losses faced by the lenders. A financial recovery of sorts ensued, but the massive debt had been used to replace lost capital and had not been used to enhance productivity or support job creation, resulting in the “jobless recovery”. Asset prices of equities rebounded, joined in the US by a bounce in the price of US real estate. This coordinated action was used to prevent a systemic collapse. China, the second greatest economy in the world approached the crisis differently.

China did not pour its trillions into banks, but into infrastructure and construction projects building massive commercial districts and enormous non-viable high rise residential units priced far above the purchasing ability of the average citizen. China went on a construction spree building more skyscrapers than any other nation on earth. Further, China built world class shopping malls sized for the record books, serviced by new roads and bridges; it all lacked in nothing but shoppers to fill the retail outlets. Millions of cubic yards of concrete; millions of tons of steel, coal, copper, aluminum, and iron ore to supply the vast construction projects that enriched a few, but gave work to millions. Factories and more factories were built to produce goods for export, but they are now starting to idle as their trading partners in Europe and Asia have slowed their purchases of Chinese imports, resulting in excess capacity. High rise residential units have been overbuilt, leading to high vacancy and the famous "ghost cities" of empty high-rise residential communities. Official lending through sanctioned lenders in China as well as the famous shadow banking system exploded the economy with liquidity driving the GDP to double-digit expansion. Some of those massive funds were exported to Australia.

Australia boomed! Mining operations expanded and workers were needed in the desolate mining districts of the Outback to supply the Chinese miracle. Truck drivers were reportedly earning $150K -$200K annually working 21 days on and 7 days off. Business activity for direct equipment sales, staffing and support, as well as marketing firms exploded. Indirect participants of the general economy benefited as well when miners returned home to enjoy their wages on new homes, furnishings, cars, and the relaxation toys of jet skis, vacations, and entertainment. The velocity of money moved through the Australian economy. Prices of homes soared. By late 2011, the boom slowed, imperceptible at first, but steadily slowing nonetheless.

Capital expenditures for Australia are projected to decrease in 2013 by 12-13%; 2014 CAPEX is projected to decrease by as much as 20%. Further, Credit Suisse (NYSE: CS) is forecasting a possible currency exchange rate of AUD/US of 0.75, which is portending lower demand for the Australian Dollar. One of the mainstays of Australian mining, premium grade coking coal has dropped from a high of $330/ton in 2011 to a current price of $135/ton. Iron ore has experienced the same phenomena, dropping from $192/ton to $130/ton. Mining projects are forecast to drop from a high of $350 billion for future projects to a possible low of $25 billion in 2018.

As the global economy slows, commodity rich Australia will be affected. In July, Woolworth's (Nasdaq: WOLWF) a national grocery chain was rumored to have begun a hiring freeze and a reduction in worker hours by 10%. Such management decisions are the result of slower revenue growth and will compound the affordability challenge. Prestigious custom home builders have been slowing and some are idle as projects have stopped. High rise development on the Gold Coast has slowed to almost non-existent. These are all evidence of less than optimal current conditions.

Since the global financial crisis, Australia has enjoyed strong economic activity that resulted in continually higher housing prices rising until 2011. Just recently, of the 34 nations comprising the Organization for Economic Co-operation and Development (OECD), Australia ranked 6th in over-valued housing when comparing both the price-to-rent and price-to-income ratio. Further, the 9th annual Demographia International Housing Affordability Survey of 2013 ranks Australia as the 3rd least affordable housing market behind Hong Kong, China and Vancouver, Canada. Australia had no affordable housing or moderately affordable regions in any of its 5 major markets, which compared to 20 Affordable and 20 Moderately Affordable regions in the U.S. out of 51; the US having already experienced the housing correction.

These ratios will drastically change for the worse if the global economy softens further; a slowdown will impact affordability which will impact price. The Australian government has pursued a policy of urban containment, releasing limited amounts of land in its 5 major markets, which has contributed to a limited supply of new housing. However, if other of the world’s economies may be used for comparison, as economies soften, the demand for housing drops precipitously. To proactively address these issues, The Reserve Bank Of Australia reduced the published rate to 2.5%; it was the eighth reduction since November 2011. This will give a boost to the general economy, and in particular, will help address the affordability issue for Australia’s housing. However, the projected forecast for unemployment has been raised from 5.75% to 6.25%, which will perhaps counter the rate cut.

Much of the published research indicates that Australia nationwide is extremely over-valued. That condition can remain the case for a very long time, particularly in world class markets like Sydney, London, New York, the Gold Coast, etc. But eventually the average person needs to be able to support the entry level and 1st and 2nd tier properties with a reasonable amount of their household income, or the market plateaus, or worse implodes, should there be an event or an external shock. I am afraid that is where Australia is! As an aside, a policy change of releasing additional land would help address the supply issue that is pervasive throughout Australia's metropolitan areas. Allowing for sector development along the freeways and demographic pressure routes would reduce the entry level prices and relieve some of the demand, further opening the market to competition from many landowners.

For better or worse, the globe is interconnected. Australia dodged the worst of the global financial crisis with the help of the Chinese economy; now if China slows or enters a recession itself, Australia will be deeply impacted. An over-priced, unaffordable housing market has the potential to implode; a steep housing correction is possible, as much as those that have corrected in Spain and the U.S. Once the tipping point is reached, a cascade usually follows that can have far reaching effects throughout the entire market. All eyes are on CHINA, let us all hope Australia's Luck holds!

This article should interest investors in the iShares MSCI Australia Index (NYSE: EWA), CurrencyShares Australian Dollar Trust (NYSE: FXA), Aberdeen Australia Equity Fund (NYSE: IAF), PIMCO Australia Bond Index ETF (NYSE: AUD), ProShares Ultra Australian Dollar (NYSE: GDAY) and the ProShares UltraShort Australian Dollar (NYSE: CROC).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

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