Sunday, January 8, 2017

1/7/17 Welcome to the Hotel California!

After a quiet day touring the shops and galleries of San Jose del Cabo earlier this week, my family and I asked our taxi driver to make a run up to Todos Santos to visit the hotel that inspired the 1976 Eagles song. Not exactly! The drive up 'desert [Highway 19] with the cool wind in our hair' notwithstanding, it turns out that the link between the Hotel California in Todos Santos and the Eagles hit is all myth.

The real story behind the Baja hotel stands well on its own. It was founded by a Chinese immigrant named Mr. Wong in 1947, who lived there with his wife and seven daughters. He added a restaurant and bar, and introduced cold beer to residents by importing ice from La Paz! In the Sixties and Seventies the town began to attract artists and musicians, and today The Lonely Planet describes it as 'one of the most appealing towns in all of Baja, maybe even all of Mexico. A quirky mix of locals, fishers, surfers and New Age spiritualists, the town of ‘All Saints’ has thus far escaped the rampant tourism of the other Cape towns, but still has all kinds of things to see and do.'

Wednesday, December 28, 2016

12/28/16 Route 66-> US Indexes take a dive for the team!

This band reminds me of college friends from Japan or Taiwan who studied hard and socialized little during the week, but amazed me on weekends with their nuanced understanding of American counter-culture. I began to realize that what should amaze us is the degree to which our perspectives are shaped by the media (try listening with your eyes closed!). These five guys (the female singer remains mostly off-camera) are clearly having a great time cutting loose from day jobs, probably trading forex or something (but that would be just another stereotype). Very tight band!

DJIA -100 points, SPX -0.74%, Nasdaq -0.82%. With the media obsessed with 'Dow 20,000,' this is the kind of action we need to set up a real run to (and well beyond) DJIA 20,000.

Away from the US, the global markets continue to look positive. Brazil's iBovespa +1.88% today with its corresponding exchange-traded fund EWZ (Brazil) +1.21%, RSX (Russia) +0.62%, FXI (China 'H' Shares) +0.9%, EEM (emerging markets) +0.74%.

Sunday, December 18, 2016

12/17/16 Q4 Market Read

Quarterbacks preparing for the snap are usually able to read the defensive alignment and have a pretty good idea how a play will unfold.  Likewise, contrarian investors preparing for the next play are usually able to ‘read’ global fund positioning (relative to historical trends) and have a pretty good idea how the following quarter will unfold.

For the purposes of this post, let’s focus on five asset classes: Cash versus Equities, the US Dollar, and Emerging Markets stocks versus US stocks.
Global fund positions in October 2016:

Thus (based purely on sentiment) no surprise that over the past several weeks: (i) risk appetite increased, (ii) the US Dollar spiked, and (iii) Emerging Markets pulled back while US stock indexes soared.  

Global fund positions in late November 2016:

Over the next few weeks, we're likely to see: (i) a (somewhat muted) continuation of the 'risk on' trade, (ii) a decline in the US Dollar, and (iii) a pulllback in US stocks against the backdrop of renewed interest in Emerging Markets.

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!