Blog Posts by Jeff Macke

Markets are selling off at an accelerating pace. The catalyst for the drop is being attributed to one-off headwinds, summer lethargy or a soft patch which is setting the stage for an autumn rally. The degree to which I disagree with all of the prior theories is hard to convey without using swear words.

It's the dollar, dummy. Again!

As I said a month or so back, it's the strength of the U.S. dollar causing selling in commodities and stocks. The dollar has been the ugly stepchild of global currency for a long time. This was by U.S. government design. Ironically, it's too much dollar strength we really have to worry about now.

Currencies trade more slowly than other markets, especially commodities. A 1 percent rise in the dollar puts more than 1 percent pressure on commodities and stocks. Small currency moves result in large moves in other markets.

The dollar is now moving higher against the euro. The dollar hasn't "broken out" versus the euro and stocks haven't "broken down" below support. But a rising dollar and falling stocks are looking more likely every day, and it's putting pressure on assets across the board. Crude is down today despite OPEC's apparent determination to limit supply. Commodities are down virtually across the board, with gold (a currency hiding place) strong on a relative basis. Cyclical stocks (reliant on a weak dollar and global growth) are being beaten senseless.

"If a tree falls in the forest and no one is there to hear it, does it make a sound?"

To most traders the answer to this age-old philosophical riddle is along the lines of, "If a hippie asked me a stupid question would I bother to answer?" No. No I would not. Or perhaps I'd have a blank stare of total disinterest; one of the two. But if you pulled a trader off a Manhattan trading desk this summer and asked him if a technical level like the S&P 500 hitting 1,250 can be relevant, now that the whole planet is watching for it, you'd twist his mind.

On the one hand, it's bullish when you know you have institutional and retail investors seemingly waiting to buy along side you at a certain level. The more people buying stocks at once, the more likely it is that a level will hold. Then again if the whole world is looking for a bottom at 1,250 big money (all those "buy dip" people) would already be front-running the trade, making it impossible for the market to get to 1,250 in the first place.

I'm blowing my own mind with this topic which makes it a good idea for me to segue into Josh Brown of TheReformedBroker.com. Brown's a savvy guy and Breakout veteran so I just threw him the 1,250 conundrum right off the bat.

Here's how Brown laid out his thinking,"because so much money is run by... technical analysis it (1,250) almost becomes self-fulfilling" he offered, easing into the topic as one would a groovy hot tub. Quickly composing himself, Brown listed a menu of reasons 1,250 does, in fact, matter.

By now it should be clear that the Breakout hosts are less than sanguine about the near-term outlook for stocks.

If not, let it be said here and now that Matt Nesto and I think the stock market may be soft over the summer. Since you most likely already knew of our concern for stocks, we welcomed Jim Paulsen, Wells Capital Management's chief investment strategist, to the show to explain the bullish case.

Nesto and I took turns letting Paulsen respond to the bearish brooding item by item. Before continuing, I suggest you take a quick listen to the most positive song I could think of courtesy of Monty Python.

Now, open your mind while I let Paulsen's bullishness drive this column.

We addressed the economic data getting no better, which can't be good for the shaky recovery. Paulsen isn't blind. He sees the weakness. From his perspective the spate of disappointing data is "definitely a soft patch" as opposed to a chilling portent of a financial dystopia. Paulsen correctly notes that unemployment is a volatile report and is frequently revised. And the May data were influenced by certain conditions that are either one-off events or factors that are already reversing -- "fallout" (his word) from the Japanese tsunami, the conclusion of a commodity bubble that peaked early in May and a spate of horrific weather.

Welcome to Dos Hombres: Largely Humorless Edition.

Matt Nesto kicked the segment off by jamming the Elvis classic Suspicious Minds into my head by way of expressing his belief that the Federal Reserve is "caught in a trap" due to current economic conditions.

After a brief pause I picked up Nesto's beat and elaborated on Ben Bernanke's predicament, a conundrum the Fed Chairman rather atypically confessed to in a speech yesterday. Specifically, the economic data is worse than the Fed thought or hoped it would be at this point. The Fed has maintained an aggressively "accommodative monetary policy stance" for well over two years. Yet the jobs data remain weak and inflation -- or what Dr. Ben calls "global pressures in the commodity market" --  is such that further devaluing of the dollar is dangerous.

"In this context," Bernanke concluded, "monetary policy cannot be a panacea." The Fed Chief hopes gas prices will ease, but until employment data improves we "cannot consider the recovery to be truly established." The Federal Reserve, in other words, is out of time, money and ideas for fixing the economy in the foreseeable future.

The Fed is relying on hope. Hope that hiring picks up, the consumer re-emerges, and U.S. economic growth rises above 3 percent by the end of the year. A 3 percent growth rate would be roughly a double from the 1.8 percent growth rate in the first quarter. For some perspective, the World Bank, a group generally devoid of America's genetic optimism, sees the United States slowing to 2.6 percent in 2011 versus 2.8 percent last year. Regardless of whether you listen to the World Bank or the Fed, economic prospects have dimmed dramatically. Yet equities remain higher in 2011. While not perfectly correlated, slowing growth and rising stocks don't generally coexist. Given a choice between hope for brighter days and actual data, most traders will short hope.

Despite the lack of evidence, there will be a Facebook IPO before 2012, as both the buzz and the pre-IPO price of the company continue to build steam. Pre-IPO price? Yup, there's a way to get long Facebook before the most hyped company in the history of hype decides to grace us with an IPO.

Breakout asked David Weir, the CEO of SharesPost.com, a company that facilitates trades in private companies, to tell us how the process works.

SharesPost and companies like it are carving out a niche by giving employees and former employees of private companies a chance to gain liquidity by selling some or all of their shares to institutions or accredited investors (people with a net worth more than $1 million in assets and over $200,000 in annual income).

So those are the rules, now what's the deal on Facebook? Weir's firm auctions Facebook on a regular basis. The most recent auction priced Facebook at $35 a share, putting the implied valuation of the king of the social networks "somewhere in the high $70 billion area," he says. Unquestionably $70 billion is a nice area if you can afford it, but how would an individual investor know whether that seems high or low, given the lack of public information available?

So now what? That's the question on traders' minds now that support at S&P 1,300 has given way.

Thus far, shorts waiting for an immediate collapse in stocks have been disappointed, but the bulls remain curiously quiet. Staying flat forever isn't an option. Something's gotta give in the stock market.

To help divine the tape's direction, Breakout invited Burt White, the chief investment officer of LPL Financial, to give us his take. As it happens, White has a little bit for everyone. We're in the midst of "a good old fashioned pull-back of about 7-10%," and "we're about halfway through that," he says.

That may be a good enough answer for regular financial programs, but that dog simply won't hunt in Casa de Breakout, so we pushed him for more. What are traders doing? What is he doing? Where's the market going, and can Bernanke save the day? Why do I get toothaches? White fielded them all.

White says the first stocks to sell off were what he refers to as the "sailboats" of the market -- companies requiring economic tailwinds to make gains, or the cyclicals, in other words. Once traders rotated into more defensive names  -- or "motorboats" that can chug along regardless of the tide or wind -- a wave of lousy economic news poured in, leading to a "full risk-off trade (and) stocks being sold indiscriminately."

His firm has raised cash and even has some market shorts in place, not just reducing risk but making bets against the tape, he says. It's not an outright bearish stance, he says, but a way to play the tape down to what he and others see as support at 1,250 on the S&P 500. White thinks we hold 1,250, which is good since he doesn't see the next stop until 1,170, roughly 10% below current levels.

So what does Mr. White think is going to stop the selling? Brace yourselves for this next paragraph, cynics. Ready?

So-called secondary markets which engage in brokering deals between shareholders of private companies and outside investors are a horrible and dangerous thing. I fully believe that these markets should be regulated by the SEC, which would largely obviate the need for secondary markets in favor of existing markets.

In general I'm a huge fan of free and unfettered markets. I think regulators are undermanned and outgunned by those who stand to profit by circumventing regulations, an imbalance which makes enforcement of regulatory rules a capricious endeavor. But I know a sucker's game when I see one. Individuals buying shares of private companies without access to the standard information available to shareholders of public companies are simply asking to be fleeced. In all things related to trading securities, you don't have to ask people to take your money twice.

The above is strictly my personal opinion. I could be wrong. But I'm not.

Now that we know where we all stand, Breakout

When Breakout needs a fresh perspective from someone with a proven ability to skate to where the puck is going, not to where it has been, we turn to is Raymond James' Chief Investment Strategist Jeff Saut. I put a lot of stock in what Jeff says, in short because I've known him for about ten years during which he's been talking about China growth, commodity demand, financial bubbles and a few other topics I'm forgetting. In other words, he's helped me make money. I have no higher praise.

While Saut is in a somewhat defensive posture right now, having made additional sales even in the weakness of last week, he's hardly a perma-bear. The S&P 500 "did break below the 50-day moving average... and also violated the failsafe support zone of 1,316 to 1,340". The drop lead to his more cautious posture, though he doesn't see a major sell-off in the works.

Unlike folks fleeing from energy and commodities in the face of an apparent slowdown, Saut isn't sweating it. "I still like the energy space,