Saturday, November 26, 2016

11/25/16 Sequel

The best of life (love, music, and the capital markets) are light on logic and reside instead in a parallel universe where events unfold in mysterious ways.

All three converged in the Seventies when Harry Chapin chronicled the story of 'the love of his life' in 'Taxi.' Linked above (and below) is the best live performance I've come across:

The first time I heard the song was senior year in high school, when a classmate played it in English class as her selection for favorite recording (along with an essay to back it up, of course!). A few years later in college, someone pointed out that Chapin had embedded part of a Sylvia Plath poem in the lyrics:

Baby's so high, that she's skying
Yes she's flying, afraid to fall
I'll tell you why baby's crying
Cause she's dying, aren't we all

In 1980 Chapin penned 'Sequel,' which gave closure to fans of the story:

Is it believable? According his biographer (Chapin died in a traffic accident in '81 on the Long Island Expressway), it's about 60% true. The real life 'Sue' worked briefly for Drexel Burnham Lambert in the Seventies, and experienced setbacks which included a divorce. In a world filled with deceptive sound bites and half-truths, that's good enough!

Tuesday, November 22, 2016

11/22/16 Do You Believe In Magic?

Heck yes! The best of life (love, music, and the capital markets) are light on logic and reside instead in a parallel universe where events unfold in mysterious ways.

With US indexes at all-time highs, the financial media insists on calling attention to investors' fear of heights. Two real time headlines from Marketwatch at this moment:



Tom DeMark actually has a pretty good record as a technical analyst. So he's predicting a -5% to -6% drop. Should we pay attention? I'm not sure. A week ago he was predicting a 1-2 day spike, followed by an -11% decline ( Now he's saying that the delayed spike translates into a milder decline. Personally, I'm OK with a -6% decline from current levels, as it merely takes the market back to levels seen a week or two ago-> so what?

Which brings up the question-> why do investors bother listening to these guys at all? Financial commentators and the media that showcase them have been wrong for so long it's amazing that investors still tune in. All the logic and technical expertise in the world mean nothing if they bring us no closer to our goals.

On a side note, what's John Hussman putting out these days?

November 21, 2016 - Action and Reaction

'My sense is that investors are exuberant to have a new theme, any theme, other than watching the Federal Reserve. While we're hearing historically uninformed references to the extended bull markets of the 1980's and the 1950's, the most reliable market valuation measures are presently over four times their 1950 and 1982 levels. The effect of politics on full-cycle and 10-12 year market outcomes is negligible, compared with the impact of valuations. Over shorter segments of the market cycle, election results do have the capacity to affect investor sentiment (particularly preferences toward risk), so a focus on the quality of market action will remain important. Near-term, my impression is that much of the recent market response is overdone, and that the markets are vulnerable to decided reversals in the opposite direction of recent trends. As I noted last week, extreme valuations already establish the likelihood of near-zero 10-12 year S&P 500 total returns, and a 40-55% market decline over the completion of the current cycle. The extended speculation in the recent half-cycle was rooted in monetary distortion and risk-seeking that is now unwinding, and we continue to expect the completion of this cycle within the natural course of action and reaction.'

I'm pretty sure Hussman initiated his cautious stance when market valuation measures were less than twice their 1950 and 1982 levels. Now they're over four times the same levels? In my opinion that's simply an example of how long these analysts can be wrong.

Tuesday, November 15, 2016

11/15/16 A bull market in world stocks has commenced

Just my opinion.  Endless media iterations of [Brexit + a Trump Presidency] = [something along the lines of 'the end of the world'] almost guarantee that we're witnessing the birth of a new global bull market.  Let's use VT (Vanguard Total World Stock Market) as a gauge.  

VT closed today at an even 60.  A 'bad' but still useful prediction of 15% per year compounded over the next five years yields (1.15)^5=2.  So I expect VT to double in price to an even 120 by November 2021.       

Thursday, November 10, 2016

11/10/16 Market Reaction as Prophesy/ Yvonne Elliman

Two market 'tells' yesterday in the form of reactions to a Trump win:

(a) Stanford.

(b) Brett Arends, normally a composed and articulate journalist and financial columnist, lost it in the wake of election results and uncharacteristically lashed out at James DePorre on Twitter.

So it's the real deal.  A Trump administration appears to be the catalyst for a continuation of the global bull market.  The polls got it wrong.  The media got it wrong.  The market has it right.  A Clinton win was never going to catapult the indexes the way a Trump victory will, all the more so in the face of widespread skepticism and ridicule.  DJIA 20,000 is now within reach by the end of 2016, and DJIA 24,000 in 2017 is now a 'reasonable' expectation (at least in my opinion).

Investors hate Trump.  Really?  Not yesterday, and not this morning.  It looks like a +100-point gap-up in the DJIA.  Whether individual investors like Trump matters little.  The market is prophesying a pretty good four years ahead.

Don't know how to love Trump?  Let Yvonne Elliman help you out!

Friday, November 4, 2016

11/4/16 Desolation Row

Nine consecutive lower closes for the SPX.  The longest losing streak since 1980, and with an uncertain election outcome around the corner there's little doubt many traders will spend the weekend on Desolation Row.  For investors with a long-term outlook, it's all good.  Since markets rarely bottom on a Friday, we're likely to see further declines early next week-> even better!  A sustainable move to new highs is impossible without the kind of negative sentiment that forces assets away from weak holders and places them into strong hands.

Monday, October 24, 2016

10/24/16 Ain't No Sunshine

(a) AAII Sentiment Survey for the week ending 10/19/16 shows 23.74% bulls:  According to Charlie Bilello of Pension Partners, that reading ranks in the 7th percentile.  

(b) Global fund managers' cash levels (according to Bank of America Merrill Lynch) currently average around 5.8%.  According to blogger Urban Carmel, this level equals the post-Brexit high, is higher than levels seen during the 2008-09 crash, and is at its highest level since November 2011 (shortly after the 9/11/01 terrorist attacks).

(c) Everyone's worried about the election, and apparently sidelined 'til it's over.

(d) Emerging markets have outperformed since the January lows, and fund managers have increased exposure to the sector.  The correct contrarian response in a typical year might be to sell at this point.  However, I don't believe it's a typical year.

In my opinion, all of the above paints an extremely bullish picture.  

Friday, September 30, 2016

9/30/16 When Jupiter Aligns with Mars

What's lining up this morning?

(a) The ES (SPX futures) printed an overnight low of 2135 (now changing hands at 2143).  Not quite 2124, but perhaps 'close enough.'
(b) An elevated put/call ratio.
(c) A -1600 tick was recorded on Thursday, 'the lowest since September 9 and equal to the one on May 18.'
(d) The Deutsche Bank crisis resembles (and may be remembered as) the Fall 2016 equivalent of the summer Brexit crisis.

I would say it all looks good, and expect the markets to rally over the next two weeks.