Quote of the Day

Remember what I said yesterday about the counter-productiveness of the financial networks? Well, here's Bespoke Investment Group on 2016's winners and losers:

.... the worst performing decile in the entire matrix is the 50 stocks that Wall Street analysts collectively were most bullish on coming into the year. 

The financial media/networks is the platform from which Wall Street's wiz's promote their prognostications.

This Week's Message: Oh No, It's January!!!

Wandered into one of our staff's office this week and heard a gentleman on CNBC ask another gentleman (I presume a market wiz) what to expect this January, given that it's been a rough month the past three years running. I quickly exited the room so as to not hear the wiz's answer (seriously!). Other than Janet Yellen's December press conference, and maybe to catch a monthly employment release or two, my office TV has been turned off for months. Honestly, I have come to the conclusion, the enlightenment, if you will, that the financial media has virtually nothing to offer the investor, let alone the investment adviser. In fact, I'd go so far as to say that it is utterly counterproductive to the business of long-term investing altogether. Heck, I wouldn't even suggest that a trader try to glean anything useful from the attention-grabbing, ad-selling noise that is packaged up for the public on CNBC (the old default on my TV), Fox Business and Bloomberg Television.

Our 2016 Year-End Letter Part 3: Present Market Conditions -- and -- The Most Useful and Pertinent Information I Have to Offer

Part 1
Part 2

In parts 1 and 2 we touched on 2016's winners and losers, equity valuations, the present risk in bonds and an economic backdrop that strongly suggests that a recession is not something we should be presently losing sleep over. So, in terms of prevailing market conditions, we've already seen a picture that inspires optimism over the prospects for economic growth and, thus, corporate earnings growth going forward. Okay, so what else?

Our 2016 Year-End Letter Part 2: The Economy

Link to Part 1

While the economy and the stock market do not necessarily move in lockstep -- we've had up years during recessions and down years during expansions -- we can all agree that, over the long-run, a healthy economy is essential to a healthy stock market.

Here's a look at the U.S. (although many, if not all, have global implications) economic indicators I track and record each week (there are more, but these are the ones I take the trouble to formally document for myself). The color coded titles denote my view of the signal each is presently sending. The red-shaded areas in the charts highlight past recessions:       click each chart to enlarge...

Our 2016 Year-End Letter Part 1: Some Look Backs, Valuations, and Bonds

Year-end letters can really be long, so, like last year, we'll break this year's into parts.

Part 1:

Today's Friday 12/23/2016, so the following can't be full-year stats, but I suspect they'll be close:

2016 New York Stk Exch Composite Index: +9.57%
2016 Dow Jones Industrial Average: +14.31%
2016 S&P 500: +10.62%
2016 S&P Global 1200: +6.58%
2016 MSCI Europe, Australia, Far East: -3.09%
2016 MSCI Emerging Markets: +7.54%

Quote of the Day: Just a blip...

I couldn't agree more with James Altucher:

This Week's Message: The Magic of Thousand-Point Milestones...

I look at markets from a number of angles. There's the fundamental view, which is the assessment of the general condition in terms of valuations, economic conditions, interest rate trends, currencies, etc. Then there's the technical approach, which is where we consider price trends, relative strength, breadth and a host of other indicators. But I must tell you, with regard to the overall market condition, as well as, and in particular, our work with individuals, I find the study of behavioral investing to be utterly fascinating.

Quote of the Day: How We Look At Things Makes or Loses Us Money...

Parents teach their children that success in life is about process. To pay attention, to learn from experience, to do their best to not repeat prior mistakes. They urge them to simply do the "right" things consistently and to watch as good results ultimately follow. Alas, if the average investor, in the act of investing, would only live his/her own parental wisdom.

Quote of the Day: The cheese keeps moving...

Every now and again a client will inquire as to why we sold a position that had been performing well, or kept, or added, one that stinks (or, say, has been stinking).

Quote of the day: Immigrants' true effect on labor demand and, thus, wages...

If your concerns (assuming you have any) regarding immigration surround the notion that importing labor reduces wages, allow Don Boudreaux, in this letter to the Wall Street Journal, to help disabuse you of that misconception:

This Week's Message: The Setup's Good, But There's Always Something...

If I had a nickel for every time somebody asked me what I think the market'll do over the next year, well, I'd be having serious nickels right about now. Sadly, the fact that I'm not typing this on my floating keyboard whilst in my mega Jacuzzi on my mega yacht in the Mediterranean means that, dang!, I just don't know :(! Yeah, you'd think that after 32 years of living this stuff I'd totally know what a few billion people are going to be thinking and doing over the next year and how it'll impact the markets. Oh well, maybe someday....

So, till then, what am I to do? And how am I to answer that question?

Quote of the Day

This, from Gregory Morris's very fine book Investing with the Trend, speaks to what is probably the chief reason why some folks just don't do well -- even in the long run -- in the markets:

Market Commentary: The Fed's Market Impact "Today" (video)

Market Commentary: Does the Setup Suggest a Reagan-Style Post Inauguration Selloff? (video)

The one thing I failed to mention in today's commentary was tomorrow's Fed rate decision. That would be because there's virtually no ambiguity in the market in terms of what's to occur -- which is a quarter-point rate increase. Of course, in the short-term, we tend to wonder what could come out of left field and catch markets unaware. In terms of the Fed that would be either no change in rates or a half-point increase. Neither of which is likely in my view. Aside from that, the prepared statement and Janet Yellen's press conference will be in focus. Anything too dovish (soft) on interest rates, or too hawkish, will indeed reflect in post-meeting trading. In which case I'll offer my thoughts tomorrow afternoon...

Quote of the Day: It's All About the Condition...

Brexit was supposed to topple the markets, and it did, for two whole days. Trump's election was supposed to send the Dow down quadruple digits, and it nearly did, for a few hours in pre-market trading. In both instances sentiment was sour going in and the general technical setup was positive. In terms of sentiment, when everybody's on the fear side of the boat the sellers have pretty much already sold, turning them into panicky buyers when they open their eyes and find the boat still floating or, I should say, the market not sinking.

The Goldman Sachs Industrial Average

As you may know, the Dow Jones Industrial Average -- the index everyone watches because it's the index everyone has always watched -- is comprised of only 30 stocks. Plus, it's price-weighted; meaning the companies whose shares sport the highest prices impact the Dow's move the most.

Quote of the day: A hundred-point move ain't what it used to be...

Yes, the market's enjoying quite a run. But I get a sense from talking with folks that they view it as some breathtaking meteoric ascent, particularly when we're talking the Dow. The thing is, at nearly 20,000, per Bespoke Investment Group below, a 100 point gain just ain't what it used to be:

Your Weekly Message: The Battle of 2016 -- AND -- Is It Trumphoria?

Some client comments over the past week:

"Marty, these levels make me nervous." "This market can't go higher". "Here's $X more to invest for me." "The market's going crazy." "Things are looking really good!"

Let's tackle them one at a time:

Market Commentary (video)

This Week's TV Segment (video)

Market Commentary (video)

What, in today's world, brings prosperity, peace, civility and even makes us smarter?

Let's you and I never underestimate how much America's greatness owes itself to trade. 

Don Boudreaux articulates this as well as anyone I know. I highly recommend his book Globalization.

Your Companies Gotta Be Free If They're Going To Lead!!

Nicolas D. Kondratieff, a Russian economist, studied historical commodity prices in the 1920s. He found that there existed long economic cycles in capitalist nations that evolved and self-corrected, which was in sharp contrast to the Marxist notion that capitalism would be its own doom. He died in a Siberian concentration camp in 1938.

This Week's Message: Obsess With Process -- AND -- Beware That After-Dinner Cigarette!

Last week we touched on the continuing (as of this week) selloff in the bond market. I warned of the dangers of owning bonds in a rising inflation/interest rate environment. I also mentioned that we haven't ventured there in quite some time. What I failed to mention is that had we ventured, or, I should say, stayed, there, at least until very recently (and a few stints along the way), our clients' portfolios would've realized better results on the fixed income side of the ledger. Yes, generally speaking, owning a few select bonds over the past few years yielded better results than the cash and short-term CDs we clung to.

Quote of the Day: Yes, Ken, That's Scary!

Republican billionaire businessman Ken Langone and I (per yesterday's video) are on the same page on this one:

"Trump has to understand, and he will, no doubt about it, ... we don't have a managed economy. We don't say to companies you can't go and you won't go. That's scary,"

Market Commentary: What's Happening to Tech Stocks? -- OR -- Good Trump, Bad Trump (video)

Quote of the Day: Harmful Noise...

Was chatting with a friend today about the general uselessness of mainstream financial media. I got to thinking that Taleb was more to the point in his epic book The Black Swan: Not only is the noise useless, in an investment context, it can be quite harmful (emphasis mine):

Quote of the Day: We're all human...

Every now and again a client will ask me to comment on a doom and gloom scenario some famous (because he/she showed up somewhere in the mainstream media) person -- whom they've never heard of -- put forth in an interview, or infomercial, they just exposed themselves to.

Scary Quote of the Day: I Hope Harvard's Endowment Team Doesn't Manage Your Money!

This headline just crossing my screen:

Market Commentary: The Fed, the Dollar and the Setup (video)

Click the icon in the  lower right corner for full screen:

This Week's Message: Bonds' Painful Lesson...

Being that bonds have not been a feature of our clients' portfolios for quite some time, I've not been compelled in quite some time to make them a topic herein. But with the dramatic drubbing they've taken of late (chart), I thought I'd go there this week. Plus, if this keeps up -- which it'll have to for awhile -- we might, after a long hiatus, find ourselves actively pursuing bond market opportunities on behalf of our clients...

Quotes of the Day: The Euro Zone setup looks good to me...

These two Bloomberg headlines from this afternoon speak to the positive setup I see for much of our non-U.S. exposure:

Bonus Quote of the Day: The Market and New Presidents

Bespoke Investment Group took a look at how the past elections of new American presidents impacted stock market returns between election night and inauguration, and over the ensuing 4 years. As you can tell below, there's nothing to go on. Which is a very good thing, because making bets on single events, no matter how big/important they may seem, is akin to believing that a slight breeze can determine the direction of a herd of elephants. Which would be a good way to get yourself trampled:

Quote of the Day: The Definition of Good Investing

Gregory Morris, in Investing with the Trend, perfectly defines "good investing":

Market Commentary: Sentiment's Up! -- And -- Chasing Losers (video)

A very short week (in the office) for me, so here's your one video commentary for the week. I make a few points that I'd like all of you clients out there to take in...

Happy Thanksgiving to you and yours! Marty

Click the icon in the lower right corner for full screen...

Quote of the day: Crowds keep it simple, and extreme...

Gustave Le Bon, in his 1895 classic, The Crowd, spoke to why I pay close attention to the prevailing investor sentiment:

This Week's Message: The Economy's Looking Up

It's commonly said in my world that bear markets are things of recessions. And that, barring the occasional correction that dips below 20%, has been my experience. Therefore, along with the trends file that I share with you on occasion, I maintain what I call my "Macro Indicators" file, which I update every Wednesday. There's where I track what I believe to be much of the most relevant economic data (what I don't track in the MI file I catch in my monthly trends file) that allows me to maintain a feel for where we are in the economic cycle. With all the hoopla around the election and what may or may not be to come, this week I thought -- via my macro file -- I'd force our focus onto what's presently going on under the surface.

Now that I have you all excited about the rest of this message, my challenge is how to copy and paste all of the charts, etc., without you scrolling down and shouting "MARTY, YOU'VE GOT TO BE *!#%^G KIDDING ME!" at your computer screen.

Quote of the day: The Secrets of Investing

Ben Carlson offers the insights he gained from The Evidence-Based Investment Conference held in NYC this week. Here's a snippet:

Quote of the day: Careful What You Ask For

Those of you who know me know that I am a passionate advocate for free trade. I often stress herein the importance of global capital flow.

Today's TV Segment (video)

This morning Joey and I discussed the surprise market reaction to the election results, and the prospects going forward.

Click here to view...

Market Commentary (video)

Quote of the day...

Here's Gregory Morris in his book Investing with the Trend:

Quote of the day: Pessimism, a poor predictor...

Here I once again borrow Don Boudreaux's Quotation of the Day.

This Week's Message: Circus Trump

Make no mistake dear reader, this is not me being political, and it's certainly not me not intending to exploit the opportunities that lie ahead. In fact, the overall setup for stocks remains quite positive in my view. This is simply me pointing out the risks...

Market Commentary: The Day After Explanation (video)

Bonus Bonus Quote of the Day...

From Josh Brown:

Business Insider yesterday:

Bridgewater Associates expects a 10.4% drop in the US equities market should Trump win the presidency, according to an investor note sent Tuesday obtained by Business Insider.

Bonus Quote of the day: Sleep On It

Bespoke Investment Group offers timely wisdom:

Quote of the Day: The Economists' Letter That Foretold Trump's Victory

Today's quote comes from one of the few bloggers I read religiously, a gent who writes under the pseudonym Polemic Paine.

Market Commentary: Election Night (video)

Quote of the day... The Business Cycle or the Politician?

From Bespoke Investment Group's end of day commentary:

Over the longer term, we’re big believers that the Presidency (or Congress) is much less important than the business cycle and other economic factors when considering US stock market returns.

I wholeheartedly agree!

October Was, To Say the Least, Ugly! So what does that suggest for November?

Per below, October was a really rough month for investors across virtually all asset classes:     click to enlarge...

This Week's Message: What the "Smart Money" is Betting On... And... Investors' View of Their Post-Election Prospects

I've used a number of different illustrations over the years to explain why I place so much emphasis on sentiment when we're talking the near-term prospects for the stock market. More recently I've described how when the majority of market players fear losing, they're generally out of the market. When the circumstance(s) they fear either concludes or doesn't actually occur, they're left huddled on the fear side of the boat realizing that it didn't sink after all. Then they either have to fish for a whole new Titanic-esque story, or scurry to the other side (the fear of losing out side) of the boat. Moving from the fear of losing to the fear of losing out means buy stocks.

Quote of the Day: The Powerless (compared to government) Rich

Sure, rich folks, like all folks, are capable of doing bad (as well as good) things. However, their power to do bad things to citizens at large doesn't remotely compare to that of government (not to say that all things government are necessarily bad). 

Borrowing today's Quote of the Day from Don Boudreaux's Quotation of the Day: 

Market Commentary: The Bull/Bear Battle Ground (video)

THIS IS THE BIG ONE, RIGHT?

THIS IS THE BIG ONE FOLKS!!

Life as we know it will change forever if ________ wins next Tuesday! Yep, it's over if  _______ becomes President! This once great nation, if not the entire planet, will descend into ruin if ________'s policies are enacted! Yep, you better watch the World Series finale tonight, because if _______ wins the election, this'll be last one you ever get to enjoy. Hell, we'll be lucky if the NFL gets to finish its season. Easter will be cancelled, forget about next year's vacation, and Christmas, well, there's no way! Forget about telling your kids or your kids' kids to get a college education, there'll be no use! Besides, the money you've invested on their, not to mention your own, behalf will be zeroed out under a _______ presidency! Famine will spread like wildfire! Wildfire will spread like wildfire! Good Lord! We'll be doomed!!

Do All-Time Highs Mean New Lows are a Coming?

A trader friend of mine reached out to me in July asking what would be the best thing to short, given that the Dow and the S&P 500 finally eclipsed the all-time highs that they inched into back in May 2015. My friend's assumption was that the mere fact that new highs were reached virtually had to lead to something, well, messy. With I'm sure much more charting and narration than he needed, I illustrated why I wouldn't short this market.

Quote of the day

While I've no doubt that the election is a factor for the market in the short run, I couldn't have said the following (from Josh Brown) any better myself:

Market Commentary: This time last year, heading into a December Fed rate hike (video)

Do we truly need politicians (no less) to ensure fairness in international trade? (video)

Me listening to a conversion between two economists on CNBC this afternoon resulted in one of our staff having to suffer through yet another one of my rants on what I view to be THE most dangerous fallacy infecting the thinking of so many American citizens these days: that international trade needs to be somehow monitored and, alas, manipulated by politicians (no less) to ensure some level of "fairness".

Your Weekly Message: The FBI testing market support...

For this week's message I was originally going to chart for you the market last year at this time versus this year, as -- like today -- we were then staring down a pending Fed rate hike. However, today's interesting action in the wake of a news headline inspires a different conversation. I'll do that year on year comparison sometime within the next few days.

------------------------------------------------------------------------------------------------------------------

In yesterday's video I mentioned that I suspected that the S&P 500 would break below its present trend line and test the 2120 (orange line below) level perhaps a few more times going forward. I also mentioned the 2100 level (horizontal white line below the orange) as maybe being a line in the sand:

Market Commentary: What does the data say about the consumer? (video)

Is it really as bad out there as some might have us think?

Bonus quote of the day...

Again, from Martin Pring:

Quote of the day...

Martin Pring, in his 2009 book The All Season Investor, speaks to the patience and discipline necessary to succeed in the market "over the long run".

This Week's Message: Infrastructure and the stock market...

My video commentary from Wednesday (watch it if you haven't yet) mostly sums up the message that present circumstances compel me to put forth. So, to end the week, I'll simply expand on one theme I noted in the video.

What do the markets think about our current state of affairs? (video)

Are you worried about what's to come? Let's see what the markets think:

"Population Stabilization" Hmm... Be careful what you ask for!

I bet some of you are familiar with the organization that calls itself "Californians for Population Stabilization". Hmm... interesting title! While, clearly, the title says it all, here's its stated mission:

Quote of the day...

No doubt some folks believe that we're on the verge of the proverbial going to hell in a hand basket and that the market is on the verge of collapse -- which are perpetually the beliefs of some of those folks (which is a good thing, as buyers need sellers) -- and of course stock prices are forever subject to whipsaws and draw downs (even/always during strong bull markets). But to the extent that the market is a discounting mechanism, as described below, its present intermediate and longer-term trends (chart below) do not support the fears of those perpetually fearful folks.

The following from John J. Murphy's great book Technical Analysis of Financial Markets speaks to the inherent risk in overthinking the market.

Quote of the day...

In a 1990 recorded debate on free trade and protectionism, The Frazier Institute's Michael Walker stated the following:

Eavesdropping on a conversation between a candidate and a campaign strategist... Or ... Skeletons Shmeletons!

Please, don't even think that the following doesn't apply equally to both candidates or any other politician for that matter. And please forgive me my cynicism...

This Week's Message: Uniqueness, and the trouble with trying to be right...

Regardless of one's level of education or achievement, every individual is subject to his/her unique, well, you name it, experiences, ego, biology, cultural scripting, prejudices, proclivities, etc. I often think about the geniuses who made a killing while lots of folks got killed during the great recession of 2008. Their amazing awareness and forethought (and, well, not to take anything away, luck) made them wealthy to the point where they can be wrong (unlucky) on virtually every next trade for the rest of their lives and never worry about how they'll fill the gas tanks in any of their yachts or pay the staff at any of their chalets (now I'm assuming that they impose loss limits on their speculations).

Market Commentary: Quicktake

Quote of the day...

You've heard me talk about things such as index futures and implied volatility when I'm offering perspective on what can get the market so jumpy from time to time. The following from John J. Murphy's classic Technical Analysis of the Financial Markets tells us why stock prices can move, violently at times, against underlying trends, and against our long-term positioning, without it remotely meaning that we're -- in the long-run -- on the wrong side of the market. I.e., futures traders do not enjoy the luxury of patience, and, thus, their reactions to price movements can actually exacerbate the extent of those movements:

Politically-Inconvenient Lessons of History, and Realities of Nature

I think we get so caught up in the inequality conversation that we lose sight of nature -- and of history. 

My personal history, my education, my scripting, my ego, etc., send me into the philosophical arms of Milton Friedman and others:

A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both. M. Friedman

Market Commentary: Quicktake (video)

Quote of the day...

The following from Pension Partners in August of 2014 has all-too-often been my observation of the individual investor's -- left to his/her own devices -- relationship to the stock market:

What Matters in Golf and Fishing, and Investing Too -- OR -- A River Runs Through Everything...

The hit movie A River Runs Through It provided a boost to the fly fishing industry of the early ‘90s. The slow motion scenes of a young Brad Pitt elegantly casting amid the serenity of Montana’s Blackfoot River had the world yearning for what had to be the ultimate peace of mind experience.

Quote of the day...

When the market does whatever it does tomorrow in reaction to the September jobs number -- or in early November in reaction to you know what, or in December in reaction to whatever the Fed does, or on and on -- before you start thinking about the share prices of your portfolio's positions, think about John Mihaljevic's wise words in his blog post from yesterday:

Market Commentary: Quicktake (video)

The charts in the video represent each respective sector's performance relative to the S&P 500 Index (as opposed to their raw performance). I.e., when the line increases the sector is outperforming the S&P, and vice versa:

Quote of the day X2...

In his classic work Economics in One Lesson (an accessible book that anyone desiring a clean, clear, unbiased view of how the economy works owes it to him/herself to read), Henry Hazlitt addressed the unequivocally pernicious overall impact of tariffs, and finds it paradoxical that anyone might find such commonsense paradoxical (which speaks to the power of political propaganda):

Today's TV Segment (video)

To clarify, real estate investment trusts and gold would be with utilities in terms of getting hit on the prospects for higher interest rates, where I say:

"utilities have been getting hit pretty hard, real estate investment trusts, gold -- and financials have been rallying. This is kind of a setup, in terms of sectors, that suggests to me that the market is discounting a fed rate increase".

 

Quote of the day...

In his September 27 blog post, Collaborative Fund's Morgan Howsel does a nice job describing the differences between bubbles and cycles, here's a snippet:

If you find an asset whose price looks expensive and is probably going to fall, you likely haven’t found a bubble. You’ve found capitalism. Excesses will correct, recover, and life will go on.

But that raises a question: If we know cycles are regular, why not try to get ahead of them by buying and selling before they turn?

Because regular does not mean predictable.

We can say, in hindsight, that you should have sold stocks in 1999 and repurchased them in 2002. We can say, in hindsight, that you should have gotten out of the market in 1929 and bought back in in 1932. But not one person in a million actually achieved this, which should make us question how feasible it is do it in the future. Look at the returns of macro hedge funds, which try to ride the ups and downs of cycles and bubbles. You would not wish them upon your worst enemy.

The investing world becomes a lot less scary when you view most booms and busts as cycles rather than bubbles. Will things ebb and flow, sometimes by a lot? Well, yeah. That’s what you signed up for as an investor. But is everything with a valuation above its historic average a civilization-shattering bubble? Not by a long shot.

This Week's Message: Second half of September data/trend wrap up...

It's become my recent custom to use my current trends file to provide the weekly message twice each month. Two-weeks ago I shared the mid-September look, below, chronologically, is the balance of the month.

Advisor Fees

A hot topic these days is the fee structure of the various platforms from which financial advice and investment management is delivered. Hedge funds, in particular -- with their extremely high cost regimes -- have been under intense scrutiny the past couple of years. While boutique firms, such as ours, have, for the most part, been able to fly under mainstream media's radar, I wonder if that tide hasn't begun to change.

Our Relationship

The investment advice industry, or, more to the point, the financial services industry, finds itself in the spotlight to a greater extent today than perhaps it ever has before. Beginning next year, anyone who receives compensation for delivering advice has to adhere to a standard that ensures that he or she is solely looking out for the client's best interest. I find it ironic that regulators are attempting to force onto an entire industry a practice that has essentially guaranteed the success of its firms that were already holding themselves to such a standard (folks do business with folks they trust).

Market Commentary: Today's volatility and a quick look at the charts (video)

Quote of the day...

You think maybe the media paints things with a certain emotion in mind to get your attention?

Here's Josh Brown on his blog, linking to a very good article he penned for CNBC:

"I hope you like it, and by the way, I didn’t write this headline. I’m told this is the sort of thing that works really well on the web:

I’ve never seen anything like the massacre of the hedge fund business this year (CNBC)"

This Week's TV Segment (video)

I suspect that a number of my readers don't agree with the stock market's (I have to assume that we all agree with the peso's) analysis of Monday's debate, or disagree with my analysis of the market's analysis. Meaning, maybe Trump did win the debate and the stock market actually liked it. For that to be the case stock traders would have to entirely divorce themselves from the opinions of currency traders (and many traders trade both). Which would be highly unusual.

And allow me one once again to reiterate that what you're reading, and viewing, herein with regard to my analysis of the market's analysis of the election is simply that: my -- entirely objective -- analysis of the market's analysis.

 

The Debate

I'm getting some push from subscribers to weigh in more on the political environment and its impact on the markets. So, hesitatingly, I'll do so. And, as I do, I want to make very clear that I will keep my commentary to my perspective on what the market is signaling. I.e., nothing herein should be viewed as an endorsement for either candidate:

Who's winning the debate?

So my wife is babysitting grand kids tonight, and we want to watch the big event together. So we're recording it. And I'm working.

I'm looking at no news feeds, but I'm tracking the Mexican Peso. Yep, that -- for obvious reasons -- is what to watch to determine who's "winning" the debate.

Quote of the day...

Ben Carson blogging at A Wealth of Common Sense:

Intelligence becomes wisdom with the recognition that no matter how certain you are in your market views, no one really knows how things will play out. This is why it’s so important to fight to keep things simple.

Quote of the day...

For the past several months I’ve been reporting on how the general market sentiment has tilted notably bearish. Conventional market wisdom – as I’ve suggested ad nauseam – says that’s a good thing. 

This Week's Message: Election Year Angst!

There’s definitely something in the air. The question du jour from clients seems to be, words to the effect: “Do you think the market’s about to crash?” or “I think the market’s about to crash, what do you think?”, or “my kid in Connecticut says everything’s about to crash and that we should sell everything now, what do you think?” or some other iteration of “the sky is about to fall, I can just feel it!”

Market Commentary: Good sweat...

So what's got the market so cheery? Is it the Fed not raising rates and not sounding too aggressive toward that aim? Well, sure! The market -- after the Fed's announcement and Janet Yellen's press conference -- spiked higher in a big way, waffled a bit, then smashed through what had been recent resistance.

Why the odds favor no rate hike tomorrow, despite recent rhetoric...

The Fed and The Bank of Japan are holding their respective policy meetings today. I see a Fed rate hike as being highly improbable, given that recent data – while on balance okay – doesn’t seem to be threatening enough relative to the signals the voting members have been sending. Plus, the dollar’s been rallying lately (first chart) and the Fed is clearly concerned about bringing back the strong currency scenario that some would say has tempered the recovery over the past couple of years:   click charts to enlarge

Quote of the day...

It's been nearly eight years since "The Greatest Recession Since the Great Depression". And, yet, the event to some was so traumatic that -- to this day -- a market dip/correction, or a headline suggesting some similar scenario is brewing, brings them to palpitations and cold sweats as they fear it's 2008 all over again. I know this because I counsel some of those somes. 

Quote of day...

Today's quote came to me from a firm that often produces decent research in my estimation. However, in my estimation, it gets a little sketchy on some of its ads.

I won't source it because I don't want to entirely discredit its author and, quite frankly, because this promising of the moon is consistent among virtually all of those firms who make their money by convincing the everyday investor trader that their research (this firm's, at times, is spot on) is better than the competition's; that they can consistently figure out the unfiguroutable.

As you read the below, picture an accompanying photo (I left it out to protect the innocent ignorant opportunistic), of, I'm guessing, an early thirties (no older for sure) rosy-cheeked young man with thick brown locks. Yep, he would be the ungrizzled genius who's so crazy rich, and charitable, as to be willing to send a tip to regular folk that will surely bulge their coffers, at the expense of his own (so, nope!). I.e., when one's done the research and has great conviction in the prospects for a stock, one quietly accumulates it before the world catches wind, then makes a bundle when --- as the world catches wind --- the stock sores.

Don't miss this opportunity to get in on low-priced gems primed for a breakout.

This is a terrific time to snap up shares. In fact, Monday morning, I plan to post a stock that is not likely to be under $10 for long. Earnings estimates are surging upward and there is plenty of other good news.

Doesn't mean he (or they) hasn't done the research and doesn't have the conviction; it simply means that it's a whole lot easier/profitable to get people to pay you a fee for a service about trading (as opposed to investing in) stocks, than it is to actually trade (as opposed to invest in) stocks.

This Week's Message...

So last night, while driving home from the office, I'm listening to CNBC Asia. The guest, an American analyst, or guru, told the story of a U.S. economy that is on the cusp of recession and a Fed that was not only not going to raise its benchmark interest rate this year, but that there's a 50% chance that they'll cut it back to zero at their December meeting. He contended that the dollar's going to tank and the yen is going to rally hard. "Go cash and gold" were his parting words, then came the commercial break.

So I hit my car radio preset that sends me to Bloomberg Radio --- in the evening you get Bloomberg Asia. Their guest, an American analyst, or guru, told the story of a U.S. economy on the upswing and a Fed that'll very likely raise its rate this December. He contended that the dollar's risk is to the upside and that the yen is destined to finally do what the Bank of Japan has been efforting mightily to make it do, tank! His advice was, if recollection serves (the message from the CNBC guy seemed to stick harder with me), to stay long global equities and beware the bond market and gold.

Quote of the day...

While I'll forever stress for you the dangers of "trading" stocks, as opposed to "investing" in companies, I find the characteristics that define the best actors from both domains to be virtually the same.

Mark Douglas, in his insightful book Trading in the Zone, identifies what it takes to become a successful trader. Adopting the following mindset is critical to long-term investing success as well:

Market Commentary: Read this and you'll understand why investor sanity means ignoring the noise!

A few times each week I write myself a little letter about the market; it becomes a nice tool for future reference/commentary. And while my notes often have little to do with what long-term investors should concern themselves with, the exercise keeps me very in tune with the market's day-to-day gyrations, and, thus, the headlines that might pique our clients' interest/emotions. I.e., the stuff that needs putting into investor perspective.

For today's commentary I thought I'd simply (after cleaning it up a bit) share this morning's entry into my log. This, I suspect, merely scratches the surface in terms of what's moving the market around, hence my subtitle:

Quote of the day...

As I read the first paragraph in Steve Reitmeister's (Zacks Investment Research) note, I thought not so fast!, but he recovers nicely in paragraph two and nails it perfectly in the last sentence:

Monday's action looked like a return to sanity after the madness that took place last Friday. That is the beauty of Monday sessions where investors have a full weekend to put their heads on straight. And in that clearer view, they saw plenty of good reasons to become bullish once again. 

I would love to say "Rest In Peace" to the pullback that started Friday. However, one can never be too sure of that outcome. Because for as much as there seems to be a return to sanity, it is quite possible that we now have a return to volatility where bulls and bears have open warfare with big market swings occurring on a day by day basis. 

That is really just an issue for short term traders to ponder.

Quote of the day...

Objectivity is tough amid our own preferences, per Tony Crescenzi:

Quote of the day...

From Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias by Tim Richards:

Most sensible people don't really believe in horoscopes even if they occasionally glance at them for amusement. Yet when it comes to investing we're happy to rely on the financial industry's equivalents: newspaper articles, stock-tipping magazines, and investment reports.

This Week's Message: My Naïve Suggestion

So what happened Friday? Actually, it’s only 11 o’clock Friday morning, but regardless of whether or not the Dow rebounds yet today from its 300 point swoon, the question begs.

Market Commentary QuickTake

Here's a quick and simple technical look at the market that'll help you keep the short-term in perspective:

Britain's Gamble Has Now Become Britain's Scramble

In conversations with folks leading up to and in the aftermath of "Brexit" (Great Britain voting to exit the EU) it became clear to me that those who --- to my, and someday (I assure you, if they get their way) their own, dismay --- have a protectionist mindset believe that the Brits taking back their sovereignty would result in a sort of commercial departure that would lead them to some healthy self-economic-reliance.

Today's TV Segment (video)

This morning Joey and I discussed the reaction to last Friday's jobs number, as well as the inherent unpredictability of the market. And, yes, I'm old, but I'm not 310 years old. Meant to say "3+", not "30+ decades of doing this". Did mean to say, however, that I started when I was 10 :)

Quote of the day...

Every now and again a client will say to me "I just knew the market was going to X." Often, but not always, 'X' stands for "take a dive", "tank", "take a dump" or take a some other four-letter verb (the family nature of the blog precludes me from going further) denoting a decline. Of course the reality of the market --- the uncountable factors, and players, that determine the next market move --- make such knowings utterly impossible.

Market Commentary: QuickTake

How Bad Policy Happens (video)

So, a group, say, a union or an industry that is comprised of, say, 100,000 Americans decides that they'll prosper if they can convince Uncle Sam to tax the foreign imports of the good(s) they produce here at home. In essence, stealing the benefits of international trade from the remaining 324,375,211 American consumers.

Investopedia says the following about tariffs:

Governments may impose tariffs to raise revenue or to protect domestic industries from foreign competition, since consumers will generally purchase foreign-produced goods when they are cheaper. While consumers are not legally prohibited from purchasing foreign-produced goods, tariffs make those goods more expensive, which gives consumers an incentive to buy domestically produced goods that seem competitively priced or less expensive by comparison. Tariffs can make domestic industries less efficient, since they aren’t subject to global competition. Tariffs can also lead to trade wars as exporting countries reciprocate with their own tariffs on imported goods. Groups such as the World Trade Organization exist to combat the use of egregious tariffs.

Allow me to tweak that just a bit:

Governments Politicians may impose tariffs to raise revenue or to protect domestic industries from foreign competition, to literally steal resources from the consumer at large and distribute the spoils to their supporters. In promoting such thievery, the politician and his/her cronies exploit average Americans' fears and misconceptions and actually convince them that they are acting on their behalf.

While consumers are not legally prohibited from purchasing foreign-produced goods, tariffs make those goods more expensive, which gives consumers an incentive to buy domestically produced goods that seem competitively priced or less expensive by comparison. Tariffs can make domestic industries less efficient, since they aren’t subject to global competition. Tariffs can also lead to trade wars as exporting countries reciprocate with their own tariffs on imported goods abuse their own consumers in the same manner. 

So how is it that we allow such things to happen?

This excellent video tells the story:

This Week's Message: August Trends

Back on August 15th I shared the title of each collected data point in my "Current Trends, August" file. Here's the balance of the month:

Market Commentary: QuickTake

Quote of the day...

Matt Ridley, in The Rational Optimist, points to Voltaire's and David Hume's pointing out one of the timeless truths of international commerce --- it makes the world safer:

Voltaire pointed out that people who would otherwise have tried to kill each other for worshipping the wrong god were civil when they met on the floor of the Exchange in London. David Hume thought commerce ‘rather favourable to liberty, and has a natural tendency to preserve, if not produce a free government’ and that ‘nothing is more favourable to the rise of politeness and learning, than a number of neighbouring and independent states, connected together by commerce and policy’.

.

Quote of the day...

From Don Boudreaux's blog post on the first day his Principles of Microeconomics class 2014:

My goal – by teaching basic, foundational, principles of microeconomics – is to inoculate students against the bulk of the common economic myths that they’ll encounter throughout their lives – myths such as that the great abundance of goods and services available to us denizens of modernity is the result of a process that can be easily mimicked or understood in detail by smart people or planners – that the market value of goods or services can be raised by price floors (such as a legislated minimum wage) or lowered by price ceilings (such as rent control) – that benefits can be created without costs – that government is an institution capable of rising above the realities that ensure that private institutions never perform ‘perfectly’ – that intentions are results – that destruction of property is a source of prosperity – that exchange across political boundaries differs in economically meaningful ways from exchange that takes place within political boundaries – that the only consequences that occur or that matter are those that are easily anticipated and seen.

Today's TV Segment (video)

Market Commentary - QuickTake

Alaska trout trends say this could be a big year for stocks :)

You may recall a couple weeks back when I mentioned that I’d be away for a few days doing some market research --- I’ll share my findings at the end. 

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A few years ago I shared my experience with my (and now Judy’s) dear friend Matt Morrill, an enlightened Montana fly fishing guide whom I met by happenstance as the one-year window to re-book a cancelled airline ticket was about to close. I found myself in Yellowstone National Park, unexpectedly inspired by a true master, not only of his craft, but of how to live. If you’re new to the blog, you might enjoy God’s Greatest Work.

Over the years I’ve had the pleasure of having fished with many a guide --- most of them adept at what they’re paid to do --- but up until this past week, other than that first experience with Matt, I have not found myself plunked at my desk immediately upon returning home writing about anything deeper than maybe analogizing a jeep trail to investing in the stock market. Well, here I am.

There’s this guy in Kenai, Alaska, named Ben Hulbert. Ben, like Matt, is a fishing guide, and Ben, like Matt, never asked what I did for a living (I.e., his interest lied solely in the moment), and Ben, like Matt, has the utmost respect for the surroundings that allow him, at the tender age of 30, to earn his living amid nature’s breathtaking beauty.

We --- Ben, my wife Judy, and I --- recently spent two amazing days adrift glacial green waters as they flowed their way to the ocean via the great Kenai River. 

Shortly after shaking hands with our young tutor for the first time I whispered to Judy "I like Ben" as she and I entered the service station mini mart where we initially rendezvoused --- Ben insisted that we grab our coffee, etc. while he transferred the gear from pickup truck to drift boat. With slightly bent brows and through a puzzled half-smile she said "really? we just met him." "Yeah, but I got a good feeling. The kid’s really comfortable in his own skin.” Soon thereafter, Judy shared that sentiment completely.

Ben’s boat will never smell of organic bait; he calls his business "Kenai on the Fly", as in "fly fishing". At one point during the second day’s drift he noticed a small concentration of fishing boats motoring through a stretch of river. He promptly equipped a fly line with a dark-red colored bead that would emulate the salmon eggs he knew these gents were spilling onto the river floor --- and into the mouths of the gorging rainbows that follow their seafaring cousins to their spawning beds. He explained his tactic with some chagrin; the fishermen douse the eggs in all manner of chemicals (to give them color and, I presume, stickiness) that are ultimately toxic to the wild trout that Ben hopes to help his clients outwit, net, and gently release. He briefly mentioned the regulatory regime he operates under and compared the bait fishermen’s freedom to slowly poison the trout to some entirety senseless regulation. Honestly, I was so eager to put his ingenious plan to work --- to get that artificial fish egg that imitates a modified fish egg into the water --- that I didn’t quite catch the details of that particular senseless regulation.

I could, at this point, as I often do, dive into the ills of government intervention. Like when the Federal government instituted a program to subsidize Alaska fishing guides during a recession, while Ben’s business grew by 20%. Which, in essence, impedes the market process that uses economic slowdowns to separate good businesses from bad, leaving industries to emerge better, more efficient, and delivering higher than ever before quality to their customers, but I won’t.

To cut to the chase, yes, this is a commercial for Ben. He’s an absolute joy of a young man who happens to be far wiser than his years. If you ever find your way to Kenai Alaska, and would like to try your hand at fly fishing (he’ll get you quickly to the basics if you’ve no experience) for wild trout (and/or silver salmon if you insist), I promise you, Ben is your man! Go to  http://www.kenaionthefly.com/

As for my research into the correlation between the feeding habits of Alaskan trout and volatility in the stock market, well, this could be a big year! :)

This Week's Message: Amateurs, unwittingly, love forecasts...

Janet Yellen’s Jackson Hole speech on Friday essentially echoed the sentiment I’ve been sharing with regard to the economy of late. That is, things are indeed improving, but not at some breakneck inflationary pace. The initial reaction to her commentary was about a 70 point decline in the Dow, as I type (it’s Friday morning) the Dow’s up 90. Won’t guess where it’ll end the day, don’t really care actually.

What I do care about are the prospects for earnings going forward for the many companies whose stocks occupy the mutual and exchange traded funds that we hold in client accounts. Their share prices will meander all over the chart while these companies search the world (yes, the world!) for opportunities to sell their wares. At this juncture, the next recession appears to be somewhere beyond the foreseeable horizon, at least to my eyes. And being that emotionally-impacting bear markets tend to need recessions, while volatility has to pick up going forward, the economy doesn’t suggest that we should be losing any sleep these days. That said, if you’re our client and you ever lose sleep over your portfolio --- regardless of market conditions --- I demand that you call Gladys the next morning and schedule us a meeting.

As this bull market grows older, out of the woodwork will come more and more soothsayers and snake-oilers offering up their guaranteed forecasts on stocks, gold, oil, currencies, etc.

Here’s Alexander Elder in his timeless 1993 book Trading for a Living telling it precisely how it is:

Nature's Law is the rallying cry of a clutch of mystics who claim there is a perfect order in the markets (which they'll reveal to you for a price). They say that markets move like clockwork in response to immutable natural laws. R. N. Elliott even titled his last book Nature's Law.

The “perfect order” crowd gravitates to astrology, numerology, conspiracy theory, and other superstitions. Next time someone talks to you about natural order in the markets, ask him about astrology. He'll probably jump at the chance to come out of the closet and talk about the stars.

The believers in perfect order in the markets claim that tops and bottoms can be predicted far into the future. Amateurs love forecasts, and mysticism is a great marketing gimmick. It helps sell courses, trading systems, and newsletters.

Mystics, Random Walk academics, and Efficient Market theorists have one trait in common. They are equally divorced from the reality of the markets.

Have a great weekend!

Marty

Audio Commentary

Quote of the day

Whether it's protectionism (erecting barriers to international trade, immigration, etc.), the pros and cons of a minimum wage, of government spending, of regulation, etc., our busy lives and varied interests I'm afraid compel us unwittingly to adopt a crowd think that risks us taking ill-conceived sentiments to fruition. Politicians, and the special interests that support them, alas, know this all too well. As Gustov Le Bon warned back in 1895:

Crowds are only cognisant of simple and extreme sentiments; the opinions, ideas and beliefs suggested to them are accepted or rejected as a whole, and considered as absolute truths or as not less absolute errors. This is always the case with beliefs induced by a process of suggestion instead of engendered by reasoning.

The characteristics of the reasoning of crowds are the association of dissimilar things possessing a merely apparent connection between each other, and the immediate generalisation of particular cases. It is arguments of this kind that are always presented to crowds by those who know how to manage them.

Today's TV Segment (video)

Market Commentary: What the Fed frets over (video)

Quote of the day

If I only had a nickel for every time, over the years, a client asked me what I think of so and so's prediction that the market is about to crash (I use the negative example because it's those that seem to catch our clients' attention). Well:

Fear sells. Fear makes money. The countless companies and consultants in the business of protecting the fearful from whatever they may fear know it only too well. The more fear, the better the sales.

DANIEL GARDNER, The Science of Fear

Ed Stavetski describes my view perfectly (HT Robert Mortorana):

You must have an independent view of the markets or the media will force a view upon you. 

Quote of the day

The indices for equity markets are roughly 10 times higher than they were in 1986, unadjusted for inflation and dividends, and the yield on the U.S. 10-year Treasury note is one-fifth of what it was. Of the top 10 companies by market capitalization in 1986, only General Electric, AT&T, and Exxon Mobil remain in the group today. Google, Amazon.com, and Facebook were not even dreams. In 1986, Microsoft, Oracle, Adobe, and Sun Microsystems went public. 

Credit Suisse's Mike Mauboussin in his August 6 letter. (HT Josh Brown)

Lots of folks seem to  yearn for the past fear change. They really shouldn't! mm

Market Commentary (video)

Weekly Message: August So Far

You’re receiving this week’s message way early. There’s market research I need to perform that will take me away from the office for a few days. It seems that there may be some correlation between the feeding habits of the rainbow trout that inhabit Alaska’s Kenai river and volatility in the U.S. stock market. I know, it’ll be an exhausting study, but somebody’s got to do it! Don’t laugh --- can’t be any crazier than the popular Super Bowl Indicator:

An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in the stock market for the coming year, and a win for a team from the old NFL (NFC division) means the stock market will be up for the year.

Yep, that indicator’s been right 80% of the time! And if you think for a minute that it is indeed tradable (or investable), I think you are indeed crazy! As for the Kenai trout indicator, on the other hand, there may be something to it. I’ll let you know…

As for this week’s message, I thought I’d share some of the month-to-date titles of the content pages I’ve placed in my August Current Trends file. I title many of these with my interpretation of what they signify:

·         Most world markets overbought, better dividends abroad, realized volatility low in U.S.

·         The evolution of S&P sector weights shows how services dominate the U.S. economy.

·         Bank of England rate cut, and ECB’s bond buying bullish for U.S. corporate bonds.

·         High yield spreads paint a sanguine picture.

·         Iron ore and steel rallying steadily, largely on China stimulus.

·         Crude inventories up, gasoline’s down, gasoline demand off the charts. Slow seasonality coming.

·         Crude technicals better than the fundamentals; shouldn’t inspire too much bullishness (for oil) for now.

·         1^st week of August data shows mixed economic signals, with slightly upward bias.

·         Really good July jobs report! Upward June revision. Wages/hours up, labor force participation up slightly, more full-time jobs.

·        Confidence among 35 year-olds much higher than 54+ year-olds. Change in employment for 24-24 year-olds is 2^nd highest in over 30 years.

·         Jobless claims below 300k for 74^th straight week. Ties for longest streak since 1973.

·         ISM Manufacturing components all above 50. Services ISM shows job growth not keeping up with demand --- could bode well for coming jobs reports.

·         Manufacturing ISM new orders and inventories rolling over a bit, something to keep an eye on!

·         Truck tonnage down slightly sequentially but remains near all-time high. Port traffic soft.

·         Huge issues of Japanese long-term corporate bonds suggests belief that rates will finally start rising.

·         China foreign reserves holding steady. PBOC doing good job managing foreign exchange regime.

·         Capital expenditure weakness partly, if not largely, about low oil and high dollar --- that set up is, therefore, for an increase going forward.

·         Ford and GM missed July estimates, but seasonally adjusted and year over year comps good. Other makers had very good results.

·         U.S. auto sales may not be peaking just yet, per consumer survey.

·         Tech and industrials lead on beats as earnings season winds down. Utilities in last place; that’s a positive growth sign going forward.

·         Some (few) are making a bullish case for the pound; I’m somewhat the contrarian here as well!

·         This headline should scare those who worry about Turkey’s Erdogan’s dictatorial tendencies!

·         Wholesale trade data paints an upbeat picture for the economy.

·         Iran looking to allow iPhones; Apple looking to tap that market once sanctions are eased.

·         Japan and emerging mkts best performers since Brexit, in US dollar terms.

·         UK stocks on a post-Brexit tear, but not so much in dollar terms.

·         China sentiment sanguine despite potential red flags.

·         Q2 earnings and revenue beats best in years, with one week left in earnings season.

·         Financial sector technicals improving.

·         Small business optimism improving, but definitely not ebullient!

·         The JOLTS (job openings and labor turnover) report shows openings below the high set in April, quits are stubbornly low, but layoff and discharge rates are extremely low.

·         Brick and mortar retail softened in July, but online remained very strong.

·         Online sales are taking a larger and larger share of total retail sales.

·         Online taking share from electronics, clothing and general merchandise, but building materials holding strong.

·         Stocks are no longer tracking oil prices.

·         Even high yield spreads are no longer tracking oil.

·         High yield spreads at yearly lows is bullish for stocks.

·         Market breadth still good, but new 52 week highs have been contracting of late; something to watch!

·         Energy breadth (52-week highs) showing a bullish divergence. However, industrials, tech and discretionary showing bearish divergences by same measure.

·         Intraday and intraweek price action tells a compelling bull market story.

·         Global CDS spreads denote healthy credit markets.

·         Import and export prices, ex-energy, denote steady global demand.

·         Bloomberg consumer comfort index declined sharply the first week of August.

·         PPI lower, not confirming the positive signal from import-export data.

·         Business inventory to sales ratio looks good coming into q3.

·         University of Michigan consumer sentiment survey up fractionally, with expectations jumping, but current conditions sentiment falling.

·         Oil rig counts rising of late, bearish indicator in terms of price.

The above suggests that stocks are currently on the pricey side; while there’s the potential for improved earnings going forward to fix it (it’ll ultimately be better earnings or lower stock prices). The services side of the U.S. economy continues to expand (that’s most of the economy btw). Commodities are hanging in there. The economy overall is okay. Market technicals are still decent, but have deteriorated a bit for some sectors --- although financials are finally looking up. Amazon is killing it! Stocks are no longer tethered to oil. Apple continues to expand its reach. Global credit spreads are sending no economic red flags. Consumer sentiment’s a little iffy. Brexit hasn’t hurt global investors in the least, at least so far. Short-term price action in stocks says the bull market is still alive (but, please, expect corrections [some big] as time goes on).

Let’s just say that the overall picture remains mixed, maybe a little muddled, but with a positive bias. I’m expecting that my Alaska trout study will help us put all the pieces together. :)

Have a great week!

Marty