Lots more stock nausea ahead: Opinion

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Fed's Robert Kaplan on interest rates: We are data dependent

Federal Reserve Bank of Dallas President Robert Kaplan on the state of the U.S. economy and the outlook for Federal Reserve policy.

A few thoughts:

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Don't you just love how so many are now coming out to tell us just how bad the "bitcon" and all those coins are? All it took was a move from almost $20,000 to under $4,000 to finally make them realize what we knew from the very beginning. And for those technicians trying to give us the technical take, here is ours. "Bitcon" and all the other coins are going to as John Vernon said, "0.0!"

Are the people of France just now figuring out that all the vacation days and all the free stuff is just not free? The biggest problem with socialism is that socialism does not breathe without the money from capitalism. When you offer too much free stuff, you have to keep raising taxes to pay for the free stuff and therein lies the vicious cycle. And when socialism overtakes capitalism, you have Venezuela of 5 years ago. And when capitalism is completely gone, you have the Venezuela of today. Do you hear that Bernie and Bernie followers?

Now we are finally seeing what we told you in advance...that is economies around the globe have topped, with some looking to be in trouble. While we remain the powerhouse of the world, we do not believe we are immune to the economic cycle...and sorry, what happens everywhere else matters to us.

Economically sensitive areas topped out many months ago, in advance of what we are starting to see now. Our real big worry is the Eurozone. Imagine...the engine of the area, Germany, contracted last quarter. This happening while the ECB has negative rates and is still printing money. In other words, absolutely no ammo left.

Despite:

  • Sentiment becoming wildly bearish. (contrary indicator)
  • Very very very stretched, extended and oversold conditions to the downside
  • Seasonal holiday strength
  • The Dow Jones Industrial Average dropped a whopping 4.4 percent, the S&P 500 3.8 percent and the Nasdaq Composite  4.3 percent in the holiday shortened week. The selling was relentless with horrid closes.

Like a broken record:

Just about everything and we mean everything...trades below the longer-term 200 day moving average. Again, nothing good can happen when price trades below. It is a physical impossibility. This is not opinion. Some areas and some indices are trading way below. Even the Dow, which always holds up best in bearish markets, finally caved in and is now deeply below.

The all-important financials remain extremely bearish. Regionals are much worse than the biggies. The all-important semiconductors remain extremely bearish. European banks are trading towards the lows of '08. Past leading growth names continue to be bludgeoned. It is never good when the leaders of the prior bull are being shredded. There is still a ton of margin on many of these names.

New highs? Utilities, a few consumer staples, a few REITS, auto parts retail and with oil crashing, airlines are actually setting up well. 1+1 =2. Thrilled yet? Just about everything else is bearish.

We wish we had better news but we don't. Our job is to read price and price to the downside was still not satisfied this past week, a week that normally has a positive bias. And to be blunt, it is not the algos, technicals or the programs that are the cause. It is the big institutional crowd needing and wanting to get out of "risk" areas and buying up "safe" names like Merck, Clorox, Pfizer and Proctor & Gamble.

Don't forget that they are also buying up the 10 year treasury note. It is the big institutional crowd speaking loudly with their moves...and we never argue. If one wants to blame the drop on algos, technicals and programs...then they should also blame them for 20,000 Dow points to the upside since the lows of '09.

Fundamentally, we continue to completely disagree that the economy is going to be fine, earnings are going to be strong and this is just a correction. Markets are looking forward, not backward and nothing about the action speaks garden variety. We have been saying for quite a while that markets around the globe are screaming slowdowns, if not recession.

In fact, a few are starting to come around to the reality that all is not right. All is not right when oil prices drop over 30 percent in 6 weeks. All is not right when Germany, the engine of Europe contracts last quarter and sees growth fall to a four year low. All is not right when Japan contracts last quarter. All is not right when we continue to see new yearly lows in everything economically sensitive while the strongest areas are the most defensive, recession resistant areas. All is not right when a few European banks trade near lows not seen since the despair of '08. All is not right when the market smacks the heck out of important retail names in the past couple of weeks while we are being told how strong the holiday season will be.

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Some have been finally forced to see what the market has been seeing, but as usual most of Wall Street always deny what is staring them right in the face... And that is worse than expected global growth is now the norm.

We again tell you that shorter-term, anything is possible. Bounces, even strong bounces can come at any time...but that will in no way change the big picture that again, is staring everyone in the face. Bounces can happen because of the G-20. Bounces can happen because of something Fed Chair Powell does or says. Bounces can happen out of nowhere as the Dow is a whopping 900 points below the 200 day average.

We are always asked about if there are any positives that can change the playing field.

While price matters most, here are a few things to watch:

  • Oil prices have crashed. While the worry is this move is telegraphing nausea ahead, the fact is if prices just stay here, $5 billion every month does not go towards the pump.  Again, airlines are showing great relative strength because of this.
  • 10 year yields have backed down. A ton of bulls have now been converted to the bearish side. (contrary indicator)
  • The G20...we gather the dummies are watching markets closely and maybe, just maybe they see the error of their ways. After all, tariff measures imposed by G20 countries currently cover a nice sized $481 billion, a new record. We also must make note that we think the G20 will also be a quasi-OPEC meeting.
  • Bernanke, Yellen, oops, we mean Powell, will raise rates in December just for credibility sake, but thinking the language will change markedly as they are now seeing different data, they say they are dependent on. We expect December to be the last rate hike.
  • And lastly, we have that end of year seasonality that is supposed to help but it certainly didn't help this past holiday week.

Wish we had better news, but we deal with reality and reality is the price action. It is not just here, but it is much worse around the globe. If we see any kind of changes, we will let you know, but this past week was another slap in the face as any strength was sold off and sold off into the close. Maybe the relentless selling we have been seeing gets us closer to another low.

Hoping for better days ahead.

Gary Kaltbaum is a registered investment advisor with more than 30 years of experience in the markets. He is owner and president of Kaltbaum Capital Management, a financial investment advisory firm headquartered in Orlando, Florida. He is a Fox News Channel Business Contributor regularly appearing on Fox News Channel and the Fox Business Network. Gary is the author of the book “The Investors Edge” and is also the host of a nationally syndicated radio show with the same title “Investors Edge” which is broadcast on numerous stations across the U.S.