Friday, June 23, 2017

6/23/17 I Believe In This Market



It's been two trading weeks since I reopened positions in
emerging markets and energy.  Without exception, each calendar day has
included one or more articles by the financial media proclaiming the dangers of
being invested at this point in the bull market (due to narrow leadership,
overvaluation, or investor complacence) or the certainty that markets have
topped.

I have a different take.  I think the global market
(especially the two sectors which I have over-weighted) is doing well for
fundamental reasons.  Prices are doing what they're supposed to do in a
bull market (each pullback initiates the next leg higher).  I believe that
the US indexes experienced a bear market in 2011 (-19% is close enough for me),
making the current bull just six years old.  I also believe that both
emerging markets and energy experienced brutal bear markets between 2014 and
2016, from which both sectors will launch what will in hindsight be referred to
as remarkable rallies.  It's just that none of the above was evident in
the past two weeks!

Monday, June 12, 2017

6/12/17 Mr Bojangles/ Reentry





Reopening positions in both the broad market + emerging
markets.  Over-weighting the energy sector (XLE) (which has
entirely retraced its gains since the November election and then some),
Brazil [EWZ] (which appears to have found support at current levels
following the May 18 Crash), Russia [RSX] (which likewise has retraced
its post-election gains and has consolidated nicely over the past three
months), and China [FXI] (I consider this morning's -1% decline a buying
opp).

I'll have more to say about the markets this afternoon or
tomorrow.  I think it's time to (re)embrace the global stock market, which
continues to move higher on strong fundamentals, and will probably do so with
or without the infrastructure spending + tax reforms promised by the Trump
Administration.  We'll look back in a few years and thank Donald Trump for
having created a beautiful wall of worry.

Addendum:

(a) Emerging markets.  Despite the +18% year-to-date, I think it remains a buy.  I would argue further that recent strength signals the beginning of a multi-year bull.  Emerging markets are coming out of a brutal  bear market that bottomed in January 2016.  Zoom out to a ten-year chart of EEM-> we’re likely to see 50 within the next twelve months, followed by a retest of its 2007 high of 55.  Is this a good time to buy?  Here’s the thing.  If EEM is on its way to 50, it’s a great time to buy.  Buying assets surging to new highs on high volume isn’t generally my style, but in this case it’s simply a matter of reentering positions opened at bear market lows in late January of 2016 (and closed in March of 2017).  The buying interest in emerging markets is real.  What matters to me is where it’s headed, which is probably another leg higher (let’s say +30% within a year) and ultimately a doubling from today’s prices.


(b)  Energy.  ‘Infrastructure’ will happen, regardless of what happens in the White House.  After a punishing first half, I think a +50% gain into December is likely.

(c)  Bottom line.  We continue to read stories that warn of asset bubbles and investor euphoria, along with comparisons to 1987.  I disagree.  My sense of investor sentiment is one of widespread disbelief.  

(d) Footnote.  I was sitting in a darkened cafe at the Landmark in Hong Kong the weekend of  June 3 when Nina Simone's version of Mr. Bojangles drifted over the loudspeakers.  Her understated interpretation gave me a new appreciation for the song.  Our thought processes make connections in synergistic fashion, and over the next few minutes I 'rearranged' my perspective on the markets.  If we overlay a 'snapshot' of the total world market over that of the US market, it becomes apparent that a bear market (one that started the summer of 2015 and bottomed in early 2016) has already come and gone (albeit against the backdrop of a more muted decline in the US).  Which puts us today in the early stages of secular global bull.  

6/12/17 Reentry

Reopening positions in both the broad market + emerging markets.  Over-weighting the energy sector (XLE) (which has entirely retraced its gains since the November election and then n bsome), Brazil [EWZ] (which appears to have found support at current levels following the May 18 Crash), Russia [RSX] (which likewise has retraced its post-election gains and has consolidated nicely over the past three months), and China [FXI] (I consider this morning's -1% decline a buying opp).

I'll have more to say about the markets this afternoon or tomorrow.  I think it's time to (re)embrace the global stock market, which continues to move higher on strong fundamentals, and will probably do so with or without the infrastructure spending + tax reforms promised by the Trump Administration.  We'll look back in a few years and thank Donald Trump for having created a beautiful wall of worry.

Thursday, May 11, 2017

5/11/7 What's Going Down?



What bothers me about this market?  There are so many smart minds trading the market these days that it's taken the game up another level.  One post getting a lot of 'play' this morning:

http://themacrotourist.com/macro/the-vix-article-no-one-will-like

A very smart take on the VIX to be sure.  And the reference to a 1999 melt-up in 2017 probably 'rings true' to many market veterans who know how often the 'pain trade' plays out (in this case, dishing out max pain to both bears and under-invested funds).  However, we know that hedge funds have been decimated by an uncooperative market over the past few years.  In addition, if that many 'smart' people are talking up a 1999 end game, I don't think it stands a chance.

Instead, it may be time to start paying attention to John Hussman.  Why pay attention to John Hussman?  After all, the Hussman Strategic Growth Fund has rewarded investors with a -50% return during one of the longest bull markets on record!  (A 5-year-chart of HSGFX resembles a ski slope: https://finance.yahoo.com/quote/HSGFX?p=HSGFX.  Hussman could have capitulated any given week over the past five years and done better!)  He's worth listening to because common sense tells me its time to listen.

There's more than one way for the market to frustrate investors.  One scenario that trumps 1999 is 1987. With investors conditioned to buy each and every dip, I can see them backing up the truck after a -5% to -8% decline.  Max pain then becomes an additional -25% drop.  Everyone thinks they'll be able to get out before that happens.

Wednesday, May 3, 2017

5/3/17 Upside Breakout?

What might the least-anticipated event going forward?  

I'm leaning towards an upside breakout in both the SPX (currently off -0.2% to 2386) and EEM (currently off -0.7% to 40.29).  Capitulation by bears may require an upside rally that blows past SPX 2400.

Friday, March 31, 2017

3/31/17 Patience/ The last few percentage points



Since closing my Emerging Markets + Total World Stock Market
positions on March 15, how have the positions fared?  EEM rallied
another +1.6% (on a closing basis) within a week, but has since pulled back.
 VT hasn't made any headway, and is trading about -0.5% lower
this morning.

Reaching for the last few percentage points can be
expensive, as swift declines become more likely.  The total gains in EEMVT from 1/21/16 to 3/15/17 were +40%+25% respectively.
Gains in EWZ (Brazil)/ RSX (Russia)?  +220%+160%!

It's prudent to leave the party early!  There will be
lower-risk entries down the road.

Thursday, March 16, 2017

(3/16/17) Easy/ The Long Bond



Opening positions in TLT ('the long bond') @ 117.80.  Will add a position in RYGBX (Rydex 1.2x Government Long Bond) at the close.

A bet on rising yields has historically been the easy trade following increases in the Federal Funds Rate.  Over a time frame of 5 years, that's probably true.  However, there's a good chance yields will drop significantly (let's say over the next few months) before they're ready to take off.