Are Stocks Heading for a 1987-Style Crash?

A year ago, Wall Street pundits and prognosticators were busy marking the 25th anniversary of the great stock market crash of October 1987, and speculating whether it could happen again to a market that had doubled over the prior three years, despite a weak underlying economy.

While October 2012 ultimately saw the Dow Jones Industrial Average (^DJI) decline by about 2.5%, that was nothing compared to the 22% one-day wipe out that crushed the market two-and-a-half decades earlier.

Today, with the Dow up more than 2,000 points since last October and trading at record highs, fears are rising that the red hot stock market could be setting up for something sinister once the summer slow season is over. (more)

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Whitney: High Interest Rates Will “Trigger a Real Downsizing” for Cities

Meredith Whitney famously predicted in December 2010 that “hundreds of billions of dollars” of municipal defaults would happen within the next 12 months. The good news is that Whitney's call never materialized and the former banking analyst has since been widely criticized. In her new book Fate of the States, Whitney discusses the cause of the 2008 housing crash and forecasts boom times for the states that escaped the residential crash and burn. But investors and analysts are eager to get Whitney's take on Detroit's filing for bankruptcy protection -- the largest in U.S. history -- and revisit her notorious prognostication again. She called the filing "a game-changing event."

When asked how Detroit’s situation will impact the muni bond market more broadly, Whitney demurred.

“Well let me turn that question back to you because you have more experience in the muni bond market than I do,” she says to The Daily Ticker’s Aaron Task in the attached video. “What do you think?”

When pressed, Whitney agrees with Task that cash-strapped cities and municipalities will likely pay high interest rates on their bonds from creditors, a situation that would dig local governments deeper into debt. She explains:

“In state constitutions there are caps on the debt service payments but not caps on the total debt outstanding that a state is allowed to carry. So when you have very low interest rates, and very cheap costs to borrow, you can borrow a lot. Now all of a sudden if your cost of borrowing has gone up by a factor of 2x, you’re hitting limits that are actually going to trigger a real downsizing for a lot of the municipalities that have been really going for broke over the last couple of years.”

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"Dr. Doom" Marc Faber: The end of this bubble is approaching

Given more than his normal 30-second soundbite on mainstream media, Marc Faber is able to discuss in considerably more detail his views on the massive growth in global financialization (when compared to real economies) noting that "one day, this financial bubble will have to adjust on the downside." This will occur via either an inflationary burst or a collapse of the system. Simply put, "it's gonna end one day," either through war or financial collapse, "it will be very painful." The Gloom, Boom, and Doom Report editor notes current asset valuations are driven by excess credit creation, printing money, and distorted market signals, and the unintended consequences of the effect on investor psychology are perfectly mis-timed. Faber concludes with a discussion of the inflationary impact of US monetary policy and where it is seen (and not seen) and the global social unrest implications of middle class discontent.
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Franklin Resources: Big BEN

Our strategy is based on adding one stock each month to our model portfolio; the stocks are chosen exclusively from those that have announced splits in the previous month.

The universe from which we are is selecting, the group of split stocks, is already assumed to be performing “ahead of the market”. So all one has to do is achieve an average performance within that pre-selected group.

First, we look for companies that are making money “the old fashioned way” are preferred. In other words, companies that have real earnings that are growing at a moderate pace get preference.

Second, we look for companies that pay dividends receive high marks. Dividends are a hedge against a falling market and are a signal, in themselves, that the company’s management recognizes for whom they are working.  (more)

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Penn West Petroleum Ltd (NYSE: PWE)

Penn West Petroleum Ltd., an exploration and production company, engages in acquiring, exploring, developing, exploiting, and holding interests in petroleum and natural gas properties and related assets in western Canada. The company's principal proved plus probable reserves are located in Alberta, British Columbia, Saskatchewan, Manitoba, and the Northwest Territories, Canada. It also has proved plus probable reserves interests in Wyoming in the United States. The company was formerly known as Penn West Energy Trust and changed its name to Penn West Petroleum Ltd. in January 2011. Penn West Petroleum Ltd. was founded in 1979 and is headquartered in Calgary, Canada.
Please take a look at the 1-year chart of PWE (Penn West Petroleum, Ltd.) below with my added notations:
PWE peaked last September at $17 and lost half of its value from there. The stock seems to be forming a base over the last (9) months all the while hitting a very important level of resistance at just under $12 (red). No matter what the market has or has not done since November, PWE has not been able to break through that area of resistance. If the stock can finally move above $12, higher prices for the stock should follow.
The Tale of the Tape: PWE has a key level of resistance around $12. A long trade could be entered on a break through that level. However, if you are bearish on the stock, a short trade could be made on any rallies up to $11.75 - $12.
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5 Rocket Stocks to Buy in August : GM, HPQ, JNJ, MA, PEP, V, DLPH

The combination of summer doldrums, Fed tapering, and muted earnings expectations can't seem to derail the rally in stocks. And it looks like investors are finally starting to get the hint...

The S&P 500 is more than 18% higher today than it was on January 1. And as the upside from equities becomes more and more conspicuous, retail investors are starting to become buyers again. Don't mistake that for a contrarian signal – fewer U.S. households owned stocks at the start of the year than in any time during the last two decades. That extreme was a contrarian signal to start buying; this modest uptick in investor participation is just confirmation of the rally.

So, with more upside left to wring out in 2013, we're taking a closer look at five new Rocket Stocks worth buying in August.

For the uninitiated, "Rocket Stocks" are our list of companies with short-term gain catalysts and longer-term growth potential. To find them, I run a weekly quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises to identify rising analyst expectations, a bullish signal for stocks in any market. After all, where analysts' expectations are increasing, institutional cash often follows. In the last 209 weeks, our weekly list of five plays has outperformed the S&P 500 by 80.66%.  (more)

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