This Week's Message: Is Over-Optimism About To Derail The Market?

Goldman Sachs says:

Investors are at 'maximum optimism' and have a letdown coming.

My client, we'll call him Bob (because that's his name), says:

This thing has to come down. It just can't keep going up like this.

My other client, we'll call him Pete ("), says:

It's got to come crashing down.

Market Commentary: Where Are We In the Cycle? (video)

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Quote of the Day: Two Things -- The Market and Human Nature -- Never Change

While the world evolves; while advances in technology change the way we work, play and interact -- and while untold time and expense is wasted on trying to predict markets, two things never change.

From Richard Smitten's excellent Jesse Livermore biography:

...human nature never changes. Therefore, the stock market never changes. Only the faces, the pockets, the suckers and the manipulators, the wars, the disasters, and the technologies change. The market itself never changes. How can it? Human nature never changes, and human nature runs the market-not reason, not economics, and certainly not logic. It is our human emotions that drive the market, as they do most other things on this planet.

Be VERY Careful What You Ask For!!

I happen to know that a good number of my clients and friends are not sympathetic to my resistance to the present protectionist (call it America first, if you like) tone.

And while I suspect that those who I'm new to (who don't know my political bents) see my position as somewhat political, I assure you, it's not! It's about business and, frankly, it's about freedom.

This Week's Message: All About Trump? -- OR -- Not Sitting On Pins and Needles...

If you're like me, and the oddsmakers, you thought the notion that Donald J. Trump would win the presidency was the definition of a long shot. And, if you're like me -- and 90% of the pundits, and 100% of the just-in-case put buyers -- you thought the idea that, should the unlikely happen, the market would rally right out of the gate was the definition of the definition of a long shot.

Market Commentary: Trend Intact (video)

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Thought of the Day: Pursuing Pay

I think it's safe to say that, save for independently wealthy philanthropists, the majority of the world's working-age population spend their workdays in pursuit of pay.

Are you ever tempted by the internet ad, TV infomercial or Bloomberg/CNBC TV/Radio spot touting some genius's sure-fire trading program?

Every once in awhile a client will ask me what I think about so-and-so, the guy who says he made X million trading stocks in a tough market, and is eager to teach the world how he did it.

Now, ads aren't cheap, and I never see the guy-in-question's name atop the list of the world's richest traders. Hmm...

So, is it true that the gent is so incredibly generous that he would spend his own money to make you and me richer? Of course not, his program is for sale. He hopes to make more money selling his strategy than it costs him to run the ads.

Okay, so the guy, like virtually everyone else, is spending his days in pursuit of pay. So, you tell me, what are the odds that his strategy works? You got it, exactly zero! For one, he'd not need to sell his strategy to make money if his strategy really made money. And two, under no circumstances would a pursuing-pay trader ever share his successful strategy with the world; at least never while it's working. He has to have the rest of us buying and selling into his sells and buys for his strategy to work.

It's Future Performance We're After

I have this good friend and client who's a bit a more active than your everyday investor. Every now and again he'll present an idea, typically a stock, tell me what he thinks, solicit my opinion, and more often than not have me see where we can generate a little cash to take the position.

If he's not already over-weight a particular sector, I generally recommend that we take from an area I'm presently under-weighting. Upon making my recommendation, he often asks for an accounting of the past performance of the position I'd draw from. I then remind him that past performance has absolutely nothing to do with my recommendation. My choice is all about the setup for that particular position going forward, which, in my view, is less favorable than that of his other positions. As it happens -- as seasons, and trends, change -- it's not at all unusual for the position I'd exit to indeed be one of the better performers over the recent past; it's just that I now see the trend changing. 

This Week's Message: What Jobless Claims Say About Stocks

I've heard Neil Dutta (Renaissance Macro's head of economic research) say numerous times that if businesses are hiring he doesn't need much more to tell him that the economy's in good shape.

As you may know, January's jobs number surprised to the upside. As you may or may not know, weekly jobless claims are on a below-300k streak not seen since the 1970s. And, by the way, that does not adjust for population growth: I.e., the U.S.'s population has grown by nearly 60% since 1970,      (click any chart to enlarge)

Market Commentary: Sector, International and Risk Trends (video)

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Get Ready for the 1% One-Day Plunge!

It's been an unusually long-time since the market took a 1% one-day hit. Here's Bespoke Investment Group:

The lack of a 1% decline through Monday is notable for the fact that it has now been 80 trading days since the S&P 500 last saw a one-day decline of 1%+.

So, when the S&P sees a one-day 20+ point decline (-200ish on the Dow), we'll try and resist the temptation to blame this or that -- it is normal phenomena. What's abnormal is the fact that we've gone this long without one:

  ...the current streak represents the first 80+ trading day streak without a 1% decline since 2006, and before that you have to go back to 1995 to find the next one. 

And when it happens we won't panic (we never do anyway), for, historically-speaking, they've not -- when ending a long streak without one -- been harbingers of bad things to come:

Once the 1%+ down day finally comes and ends the streak, investors have used it as an opportunity to reload as the average one week, one month, and three month returns are better than the average for all periods since 1928. 

Quotes of the Day

Economist Arnold Kling, in The Three Languages of Politics, speaks directly to me when it comes to free market economics -- I absolutely know that I instinctively scrutinize and dispute any evidence that contradicts it. And, for whatever reason, I allow myself such luxury:

When we engage in motivated reasoning, we are like lawyers arguing a case. We muster evidence to justify or reinforce our preconceived opinions. We are open and accepting when it comes to facts or opinions that support our views, while we carefully scrutinize and dispute any evidence that appears contradictory.

When it comes to the financial markets, however, it is essential that I not wish for anything, nor argue on behalf of bulls or bears. I have to assess conditions as the market presents them, like them or not. In this regard I must heed the advice of Nassim Taleb:

The problem is that our ideas are sticky: once we produce a theory, we are not likely to change our minds—so those who delay developing their theories are better off.  When you develop your opinions on the basis of weak evidence, you will have difficulty interpreting subsequent information that contradicts these opinions, even if this new information is obviously more accurate.

Quote of the Day: History Tells How to Create a Safer World -- And -- Protectionism Owes to No Political Party

Michael Shermer, in his thought-provoking book The Believing Brain, makes the point that I've made countless times over the years herein (throughout both "liberal" and "conservative" Washington regimes):

This Week's Message: What the Market Is -- And -- The Making of an Investment Adviser

Nick, feeling the momentum from recently completing the rigorous CFP (Certified Financial Planner) curriculum, is contemplating his next academic challenge. He has determined that it'll either be the CFA (Chartered Financial Analyst [the pinnacle designation of portfolio managers]), or the CMT (Chartered Market Technician [the preeminent credential for technical analysts]).

Market Commentary: The Global Economy, Foreign Markets and a Quick Look at the Short-term Technicals (video)