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:

(a) http://www.marketwatch.com/story/stocks-at-all-time-highs-calls-for-extreme-caution-2016-11-22?mod=MW_story_latest_news

(b) http://www.marketwatch.com/story/tom-demark-now-sees-5-6-retreat-for-stock-market-in-wake-of-trump-rally-2016-11-22

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 (http://www.marketwatch.com/story/in-wake-of-trump-rally-tom-demark-calls-for-11-stock-market-decline-2016-11-11). 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?

https://www.hussmanfunds.com/weeklyMarketComment.html

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.