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GM guns for Tesla: Chevy Bolt to have 238 mile range

Stocks (^DJI, ^GSPC, ^IXIC) are selling off at the midday mark, with the major US indices all down over 1.25%. Energy (XLE) is leading the way down, with consumer staples (XLP) the least in the red. Alan Valdes, director of floor operations at Silverbear, joins us live from the New York Stock Exchange.

To discuss the other big stories of the day, Alexis Christoforous is joined by Yahoo Finance’s Rick Newman and Thomson Reuters correspondent Bobbi Rebell, author of “How to be a Financial Grownup.”

Outrage grows over phony account scandal at Wells Fargo

Wells Fargo is fighting to improve its image as outrage grows over allegations the bank created 2 million phony accounts that customers didn’t authorize in order to reach lofty goals. Wells CEO John Stumpf announced today that the bank will eliminate all product sales goals in its retail banking unit. Last week Wells Fargo agreed to pay $185 million in fines and return $5 million to customers affected by the scam. It also fired 5,300 employees.

GM’s Chevy Bolt to travel 238 miles on a single charge

General Motors is upping the ante in the bid to sell mainstream America electric cars. GM says the 2017 Chevy Bolt EV will go 238 miles on a single charge. That’s 10% more than Telsa’s mass-market car, the Model 3. And that car is still more than a year away. After subsidies, the Chevy Bolt will cost less than $30,000.

Trump bashes Fed Chair Yellen

Donald Trump is saying Janet Yellen should be ashamed of what she’s doing to America. He’s accusing the Fed Chair of keeping interest rates low to help President Obama. Trump also argues that savers—the ones who “did it right”—are the most hurt by low interest rates.

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EU to regulate Skype, WhatsApp like AT&T, Vodafone

Stocks (^DJI, ^GSPC, ^IXIC) are trying to rebound pare Friday’s losses after opening down earlier, with energy (XLE) leading the way down on the back of a crude oil plunge. Tech (XLK) is leading, while financials (XLF) are lagging but still in the green. Peter P Costa, president of Empire Executions Inc., joins us live from the New York Stock Exchange.

To discuss the other big stories of the day, Alexis Christoforous is joined by Yahoo Finance’s Justine Underhill and Julia La Roche.

New rules for chat apps would be victory for telecom industry

It looks like big telecommunications companies are about to score a victory in their battle with messaging apps. The Wall Street Journal reports that the European Union will propose new rules for apps like Skype and WhatsApp—the same ones that are already imposed on AT&T, Vodafone and other telecom firms. The telecos have long complained that so-called “chat apps” have an unfair advantage in their competition with traditional voice and text services.

‘Digital natives’ to transform demographics, policy

“Digital natives” are on the rise. Those are the generations that grew up in the digital world with the internet, smartphones, and all the modern gadget accoutrements. And, they’re set to cause demographic changes the likes of which have never been seen, as their numbers swell from 9% of the world’s population to over 50% by 2050, according to an HSBC study.

Starbucks tries to boost brand, avoid the ‘basic’ label

Finally,  a  there’s a debate “brewing” over whether Starbucks still has the right stuff or has become too “basic.” Speaking last week in New York, CEO Howard Schultz acknowledged that the brand’s “ubiquity” has some customers questioning the quality of its coffee. In response, Starbucks is reportedly spending millions of dollars to build special roasteries and adding new menu items. And it’s all in an effort to avoid be labeled “basic.”

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More evidence Snapchat will make augmented reality glasses

Stocks (^DJI, ^GSPC, ^IXIC) are mostly flat at the midday mark, with utilities (XLU) and energy (XLE) leading and with financials (XLF) the most in the red. Alan Valdes, director of floor operations at Silverbear, joins us live from the New York Stock Exchange.

To discuss the other big stories of the day, Alexis Christoforous is joined by Yahoo Finance’s Rick Newman and Dan Roberts.

PayPal partners with MasterCard

PayPal just inked another big deal—this time with MasterCard. After splitting off from eBay, the payments company has been making acquisitions and signing deals with key partners. In July, it partnered with Visa, but investors weren’t too happy, sending the stock down as much as 9% soon after the announcement. Today, the stock is up slightly. We also take a look at Walmart Pay. Launched two months ago, shoppers are using it the way the retail giant had hoped.

Chase runs out of new Sapphire Reserve card that costs $450 annually

A new credit card from Chase is so popular the bank ran out of them. We’re talking about the Chase Sapphire Reserve card, which has a $450 annual fee. Chase tells Bloomberg it approved tens of thousands of applications last week. It ran out of the special cards and had to send out regular plastic ones. One reason the card is so popular: Cardholders who spend $4,000 in the first three months get a sign-up bonus of 100,000 points, worth $1,500 in travel through Chase’s website.

Snapchat fuels speculation about making augmented reality goggles

We have another sign today that Snapchat is serious about developing goggles featuring the technology known as “augmented reality” (or, AR). AR allows a camera to superimpose a virtual image on a real image—like Pokeman Go, for instance. The Financial Times reports that Snapchat has joined a BlueTooth wireless group. That’s fueling the latest round of speculation that Snapchat wants to move into the augmented reality hardware space.

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How Pimco and China are making billions off of negative rates

Monopoly banker

The grand experiment with negative rates continues … and is likely to expand considerably when the Bank of Japan meets later this month. Nevertheless, $13 trillion in negative-yielding sovereign bonds (in other words, government bonds you’re supposedly guaranteed to lose money on) are already providing mind-bending trading opportunities to those savvy enough to navigate the opaque derivatives market.

To foreign investors, the 1.60% yield on 10-year US debt (^TNX) may look attractive relative to the low and negative rates elsewhere. Yet, central banks have turned the business of investing on its head by operating near the zero bound (both above and below) since the financial panic.

The non-intuitive truth is: Foreigners who don’t already own US dollars are likely to lose money by buying US Treasurys, which is mainly due to hedging costs against movements in currencies and interest rates.

On the flip side, two of the largest purchasers and holders of US debt, China and bond fund Pimco, are taking the opposite side of this trade, according to Bloomberg, which reports that China alone has invested $99 billion worth of yen in short-term Japanese treasury bills.

This means that China is using its stash of dollars to make a profit of about $1.2 billion annually through a convoluted investment in 3-month Japanese debt, according to data compiled by Yahoo Finance. This amounts to a 1.2% annualized rate, which is four times that of the comparable 3-month US Treasury.

Explaining the negative rate trade

Don’t sweat the details. For the average investor without an institutional account, this one’s off the table. But, for those who are interested, the slides below and video at the top of this article dig into the details.

How to profit from negative rates (pt 1)

  How to profit from negative rates (pt 2)

Watch out for negative rates in the US

Since the Brexit, investors have rewarded the US with safe haven flows into US Treasurys. Yet, the net movements in the dollar and longer-term US debt since that date have narrowed recently. As long as global concerns continue to subside, non-US investors will become increasingly risk-tolerant. Correspondingly, the profit in the US dollar-Japanese debt trade will eventually be arbitraged out.

US investors and regulators alike are considering what it feels like to be on the other end of this trade. Federal Reserve Chair Janet Yellen recently spoke at Jackson Hole, and, according to John Mauldin, negative rates are “clearly on her mind.”

“I don’t think Yellen will take us down to -9% like the model in her footnote describes. I do think she is mentally prepared to go below zero if she sees no better alternatives that fit within her economic philosophy. I feel very confident she and her colleagues won’t take rates much higher from here. I think we will see 0% again and then lower before we see +2%,” says Mauldin.

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One more bull leg, but short-term pain first: analyst

“Low volume,” “low volatility,” “no volume,” … “boring.” Such was August—at least in the words of the analysts covering the market who couldn’t seem to get the month off. Yet, congratulations are in order.

The summer is nearly over, and for the first year since the financial panic, we’ve (so far) avoided a full-blown market panic selloff. Greece took a little wind out of markets in May, and the Brexit in June looked like a sure-fire risk-killer but quickly fizzled from investors’ minds within days.

Amazingly, fundamentals are starting to matter again. (Gains in the first six years of this bull market were largely derived from three rounds of quantitative easing liquidity.)

According to FactSet, revenues are set to turn positive in Q3 and companies should start reporting profits again in Q4. In other words, the “earnings recession” should be over soon. True: Growth is anemic and has come painfully slow. But by many metrics, we’re as close to full employment as we were before the financial panic.

S&P 500 technical picture

Currently, UBS is calling for a short-term decline in September. Support levels for the S&P 500 (^GSPC) include 2050, the old all-time high in of 2134, 2100, and (worst case) 2070, which is about 95 handles, or 5%, below the current price of 2165.

Longer-term, UBS is looking for the completion of a secular Elliot Wave 5 bull leg into the first half of 2018. But they do warn that the bull market will be difficult to trade and will favor stock pickers over passive investors.

S&P 500 – UBS technical picture

“From a cyclical/tactical standpoint, we see the risk of a more significant corrective process from later September into initially later October/early November (wave a) and finally into late Q1 (wave c) before resuming the underlying bull cycle. So the whole wave 5 bull cycle will very likely be highly selective (regionally and thematically) and also highly trading oriented, where from a trend perspective our focus remains on cyclical outperformance,” says UBS.

Elliot Wave technical analysis is by its nature very discretionary and open to interpretation. Nevertheless, there are other reasons to be bullish long term. Financials (XLF), the prior laggard of 2016, have been leading the broader market since the Brexit sell-off, as banks anticipate at least one Federal Reserve rate hike this year.

Short term, it’s important to watch the VIX (^VIX), according to Keith Bliss of Cuttone & Co. “The VIX from the beginning of July until just a week ago was below that 13 handle…and now it climbed above it and is trading at about 14,” says Bliss.

“After it’s traded below 13 for so long, once it gets to back above that bottom channel, it tends to zip up to 20. And then if it can break out of 20, it’ll have a substantial move—an outsized move. And of course, that’s going to be negative for equities. So that’s the one thing you really need to keep an eye on going forward.”

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Buy of the year: Japanese stocks, says analyst

Japanese pagoda

Japanese stocks are poised to rocket higher and test levels not seen since the 1980s, according to Yves Lamoureux, president and chief behavioral strategist of macroeconomic research firm Lamoureux & Co.

From a technical perspective, Lamoureux notes that the Nikkei 225 Index (^N225) has showed strength by going sideways most of 2016 despite a significantly stronger yen, which ought to have weighed heavily on Japanese stocks.

Lamoureux correctly calls many long-term price swings in various markets and rarely shares his proprietary work. However, he has provided the below chart exclusively to Yahoo Finance, which shows the current “buy” signal in the Nikkei.

Nikkei 225 – Lamoureux and Co. behavioral model

“By May 2017, we target the swing up back to 20,000. But this is part of a much larger pattern that will take us to 30,000. You will see how the same signal launched the Nikkei in 2012,” he says.

From a fundamental perspective, Lamoureux argues that from a societal perspective, Japanese are warming up to immigration in an effort to reverse demographics. In addition, people are underestimating Japan and the power of consensus. “Slow moving at first, the Japanese can act fast once they understand the merits. We look for [BOJ Governor Haruhiko] Kuroda to unveil a shock-and-awe later this month,” he says.

“Ultimately the BOJ and pensions will have bought all available stocks. The BOJ has instructed pension funds to get rid of bonds and buy stocks. The BOJ is buying everything on sight through the purchase of ETFs. [It already owns more than 50% of all Japanese ETFs.] The ultimate unwritten goal is to float up values of the portfolios, as bonds will make the task of creating returns near impossible. Over the next five decades pension funds need to build wealth.”

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Why today's Philly Fed manufacturing print wasn't so bad: trader

By Stephen Guilfoyle, chief market economist at Stuart Frankel & Co.

Good Afternoon,

Currency valuations were the story this morning, and yes, you can blame the central bankers (with some help from the media). First up, the Japanese yen rallied hard when BBC Radio aired an old interview with Bank of Japan Governor Haruhiko Kuroda. In that interview, the governor ruled out “helicopter money,” or perpetual bonds.

With the BOJ widely expected to act aggressively next week, markets reacted at the time. The Yen did soften somewhat after news broke that the interview was dated. After that ridiculousness, the European Central Bank held off on acting further, as expected.  At first, the Euro spiked higher, which was uncharacteristic behavior for that unit of currency while ECB president Mario Draghi is speaking.

Draghi did eventually go into the preparedness of the central bank to act if post-Brexit conditions worsen, and the ECB’s ability to keep finding something, anything to buy. That sent the Euro back to its recent support level of 1.10 versus the US dollar.

Lots of US macro data today

The secondary story of the day would be the domestic macro that we saw this morning. The two items that most notably stand out are June existing home sales and the July Philly Fed.

First, the Philly Fed: a -2.9 print that actually seemed a bit misleading once one took a look under the hood. With new orders, shipments and unfilled orders all moving the right way, this was hardly a discouraging report.

Existing home sales then beat to the upside, close to the top of the range. This added to what was already a fairly strong month of June for the US economy. June was a month where we saw a strong NFP print followed by hot retail sales, improved industrial production and some strength in housing starts—not to mention year-over-year core consumer level inflation of 2.3%.

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Forget earnings—watch the US dollar and crude oil

  Halliburton kicked off energy sector earnings this morning with modest beats off already beaten down expectations. It’s more of the same for the financial sector, which Morgan Stanley just rounded out with surprises of its own.

But all these numbers are backward looking. Forward guidance is strengthening and beginning to price in two of the biggest fundamentals that matter right now: the US dollar and crude oil.

Lowered expectations

The bar was set so low for Q1 and Q2 earnings this year that the US stock indices have been able to run with modest beats while shaking off bad news all summer. (This is the first summer there hasn’t been a major decline since the beginning of this seven-year bull market.)

The pessimism was predicated on two factors that dragged risk markets down in the second half of 2015: a strengthening US dollar and a precipitous drop in the price of crude oil. Both accelerated an already weakening market in Q3 2015, which finally reversed early this year.

Because of those nasty quarters late last year, they’ll be easier to beat this year. Hence, the raise in forward guidance, supported by a strengthening labor market that translates into more consumer spending.

Even the increased chance of a Fed rate hike isn’t spooking the markets. Rather, banks—whose margins have been squeezed by ultra-low interest rates for 8 years—are putting a bid on the indices.

Here’s the technical picture for oil and the US dollar

Crude oil has also been consolidating, with $45 per barrel (basis August futures) serving as strong support. A break downward points to $40 a barrel. This would cause concern for the energy sector, but as long as it holds, it shouldn’t be a disaster. Oil needs to climb above $50 and stay there for a quarter to turn around the sector, according to various industry analysts.

The US dollar index broke through key resistance Tuesday after a multi-week consolidation. This is a very solid technical setup that favors an additional 3.5% rally into the 100-101 area, which just so happens to be the 2015 highs. At that point, it’s do or die. If the dollar breaks through, it could generate enough momentum to rally to levels that drag on the US economy.

Yves Lamoureux, president of macroeconomic research firm Lamoureux & Co., is a self-described dollar super bull and believes there is too much complacency in the foreign exchange markets.

“There is this sense now that because we have gone sideways for one year that nothing can happen in the FX world. That is so absurd. People thought the same about the British pound, and now the pound is being pounded. Our proprietary model shows global liquidity to be contracting in the same fashion as the early 1980s. This is what dictates our bullish view of the US dollar,” says Lamoureux.

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Why stocks could rally this summer like we've never seen before: trader

By Alan Valdes, director of floor operations at Silverbear

Most eyes are focused on Cleveland this week, but let’s not take all our attention off Wall Street. It’s shaping up to be a pretty big week for earnings. We have a slew of potential market movers—GE, Goldman Sachs, JNJ, Halliburton and AXP—reporting, just to name a few.

Later in the week, we get a host of government data, existing home sales, jobless claims, oil inventories and housing starts. So far, both earnings and government data have been surprisingly better than expected, enough so that we started off the week at another all-time high (DOW 18,533) despite not much volume (75,500,000).

But keep in mind it was a Monday, and many traders were still enjoying an extra day at the beach. Traders are now talking about a melt up to Dow 20,000. This very well may be the year we see that psychological magical number. Conditions are setting themselves up for a continued bull market. No matter how hard they try, the Feds, it seems, are going to be stuck in a low-interest rate environment, which ends up being great for stocks.

Watch that dry powder

Employment numbers, on average, have gained 281,000 per month. Not great—but nevertheless, trending in the right direction. Salaries in the US have been going up ever so slowly (okay, painfully slow). Keep an eye on that cash or (as they used to say, “dry powder “) on the sidelines. By some accounts, there are trillions of dollars on the sidelines looking to find a home other than the 10-year at 1.4%.

But the big push to 20,000 may come from overseas where negative rates are causing an exodus to our shores. This hunt for yields could indeed push us to a Dow of 20,000. Will it be a straight line up? Doubtful! There will always be bumps in the road. However, with Brexit in the rear-view mirror, continued low-interest rates, no real inflation, earnings looking okay and money looking for a home—the real opportunity exists for a summer rally like we have never seen before.

Back to Cleveland

We are going to hear numerous speeches. We will hear how great Donald Trump is this week and how great Hillary Clinton is next week in Philadelphia. For those of us on Wall Street, it’s all about who will be best for both Wall Street and Main Street businesses.

Trump’s tax plan is intriguing. He is planning on cutting the individual and corporate tax rate to 15%—taking us from one of the highest rates in the world to one of the lowest. This, if implemented, would be a huge boost to the economy in general and to Wall Street in particular.

First of all, 15% would make us competitive with the rest of the world. Our biggest trading partner in the EU is at 25%, and China comes in at around 25% as well. It would have the potential of raising our weak GDP to 4%, create about 12 million jobs and add about $10-12 trillion to the economy which would offset the dollars lost from the reduced tax revenue. Unfortunately, what looks good in July can change by the time it arrives in Washington in January.

Either way, it looks like anything but the summer doldrums this year. Fasten those seat belts!

Next week I will highlight the Clinton tax plan.

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Why the bond market is a 'shot across the bow' for stocks

By Keith Bliss of Cuttone & Co.

Interest rates and the equity market

Without question, the dominant worry in the market right now is interest rates. For sure, traders and investors are always concerned with the rate environment; but in today’s market, the concern has turned to outright worry in many corners. The worry is this: Interest rates (by proxy the bond market) are signaling something negative, but, so far, the equity market doesn’t seem to care.

Global interest rates have been in a secular decline for 30 years. Indeed, the last notable peak for the US 10-year yield occurred in mid-October 1987 at 10.2222. Since that time, the 10-year (and other global benchmarks, for that matter) has never gotten close to that level and has proceeded on a long, slow slide to a negative real rate. Other global benchmark rates are not only negative in real terms, they are now negative in nominal terms as well. With the US 10-year currently yielding 1.42%, we are a very long way from those heady days in the late 80s.

So, one may ask, “What’s the problem? Low rates are good.” Low rates are good when they engender money creation and real investment that stimulates an economy. Persistently low rates — especially ones that are negative in both real and nominal terms — are not good for many, many reasons, and they are a sign that something is structurally wrong. This is particularly the case when we observe that low rates are not doing the job of stimulating economic growth.

Most industrialized, “modern” economies, including the United States, now find themselves with negative real rates across the yield curve. Some, like Switzerland, have recently experienced negative nominal rates across their entire term structure … extraordinary. And yet, most government authorities around the globe (including in the US) are revising their growth estimates downward. Something is wrong.

The bond rally (and the associated persistently low rate environment) and the current equity market index levels are mismatched. Bonds are overbought, and yet we see the S&P 500 (^GSPC) and Dow Jones Industrials (^DJI) just a few percentage points from their respective all-time highs. Much of this disconnect can be attributed to investors chasing yield, and the best risk-adjusted return still resides in the US equity market.

However, there is a sweet spot with which the bond market and the equity market should be properly aligned in the valuation of both, and we are not there. This disequilibrium is a “shot across the bow” from the bond market, but so far the equity market is blind to it. When equity investors finally pay attention to this disconnect is anyone’s guess, but I’ll be watching for the first warning signs.

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Stocks will go nowhere over the coming years: Trader

Investors are signaling the greatest fear of a stock market plunge since February. But one prescient trader believes stocks will simply go nowhere over the coming years.

Ahead of the FOMC meeting Wednesday, the VIX jumped higher on concerns over the labor market. The Fed didn’t help matters by lowering expectations for the economy and for future rate increases Wednesday.

All told, the VIX has rallied 80% in recent weeks, reaching a high of 23 on the heels of a five-day slide in equity prices. It had previously been oscillating in a range of roughly 12 to 16, which was concurrent with a rally in stocks from the February lows.

The VIX measures the premium investors are willing to pay for insurance on their stock portfolios. Volatility is inversely correlated with stock prices because when stocks plunge, daily swings in price become larger.

According to data compiled by Yahoo Finance, since the financial panic, one of two scenarios plays out when the VIX spikes to current levels. Stocks tend to either reverse to the upside very quickly, or the move becomes part of a larger selloff that takes one month to resolve. Based on price action this week—especially considering the post-Fed meeting reversal Thursday—the former is the likely scenario, which bodes well for stocks in the short-term.

Notwithstanding the latest move in the VIX,Yves Lamoureux, President of Macroeconomic Research firm Lamoureux & Co., believes volatility will trend substantially down in the coming years. Lamoureux has previously forecast several major turning points in equities this year. He has also been a U.S. dollar bull for more than a year.

“We believe we are heading into a larger supercycle of ultra-low volatility. Deleveraging and new bank rules will not allow overleveraging anymore,” says Lamoureux.

While a low VIX is usually supportive of higher equities prices, stocks can also simply become range-bound. “People are not prepared to see the major stock indices go sideways for years, but stock pickers will have an advantage. Lots of hedgies will get crushed, and we’ll end up with uninspiring market swings. The old days of big spikes will be over.”