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JPMorgan Chase :Markets are overbought

  
Analysis, Economy, Education, US Market
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“Although the SEC fraud case does not have direct implications outside Financials, the rise in uncertainty is negative for equities at a time when equity markets are overbought. Technicals have been pointing to overbought equity markets for some time now and Friday’s correction has the potential to drag the S&P 500 down toward 1175 in the near term. But our technical strategists see very little chance of the S&P 500 falling below 1150, i.e., the January high, over the coming weeks.”

Source: JPMorgan Chase & Co. (Public, NYSE:JPM)

Please note that JPMorgan Chase & Co. (Public, NYSE:JPM) has been dead right on their market calls, as the Pragmatic Capitalist points out in his website, “few of the big banks have traded the recovery as well as JP Morgan. They nailed the reflation trade and they have subsequently been dead right about the reflation trade transforming into the recovery trade. They’ve recommended that investors pile into the highest risk names in the market and its been a winning trade since.”

The Inviolable Rules for Traders

  
  Education
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1. Reward is always relative to risk: If any product or investment sounds as if it has lots of upside, it also has lots of risk. If you can disprove this, there is a Nobel Prize waiting for you.

2. Asymmetrical information: In all negotiated sales, one party has far more information, knowledge and experience about the product being bought and sold. One party knows its undisclosed warts and risks better than the other. Which party are you?

3.Good advice is priceless: I know, easier said than done. The Street buys the best legal talent, mathematicians and strategists that money can buy. Make sure you have expert advisers and lawyers working for you as well.

4. Motivation:Always ask, what is the motivation of the outfit selling me this product? Is it the long-term stability and financial health of my organization — or their own fees and commissions?

5. Legal documents are created to protect the preparer (and its firm), not you or yours: In the history of modern finance, no large legal document has worked against its drafters. Private placement memorandums, sales agreement, arbitration clauses — firms use these to protect themselves, not you.

6. Performance: How significantly do the fees, interest rates commissions, etc., have an impact on the performance of this investment vehicle over time? Determining for yourself what the actual cost of money is will avoid more heartache in the future.

7. Shareholder obligation: All publicly traded firms (including investment banks and bond underwriters) have a fiduciary obligation to their shareholders to maximize profits. This is far greater than any duty owed of care to you, the client. Always ask yourself whether this new product benefits the shareholders or your organization. (This is acutely important for untested products.)

8. Reputational risk: Who suffers if this investment goes down the drain? Who gets fired or voted out of office if this blows up? Who suffers reputational risk?

9. Keep it simple, stupid (KISS): It’s easy to make things complicated, but it’s very challenging to make them simple. The more complexity brought to a problem, the greater the potential for things to go awry — not just astray, but very, very wrong.

10. There is no free lunch: Repeat after me: There is no free money, no riskless trade, no way to turn lead into gold. If you remember no other rule, this is the one that will save your hide time and again.

Goldman Capitulates: Lowers GDP Forecast, Increases Unemployment And Inflation Outlook, Sees Imminent QE "Lite"

  
  Education
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It’s official: the double dip is here. Goldman’s Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that “the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting.” Look for all other sell-side “strategists” (here’s looking at you Neil Dutta) to lower their economic outlook in kind, and the 2011 S&P consensus to decline accordingly.

From Goldman Sachs:

 
 

Over the past two to three months, the US economic recovery has lost a considerable amount of its momentum.   As a result, our forecast of a significant slowing in US growth in the second half of 2010—widely regarded as implausible just three months ago—is now increasingly accepted as the baseline.  As the data disappointments intensified in early July, we indicated that we would consider revisions to our economic outlook.  With the annual revisions to real GDP now behind us, we are making the following changes: (more…)

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