Sunday, April 30, 2017

Quote of the Day: A Silver Lining in the GDP Report

As I stated yesterday, we'll be focusing more on the economy this week here on the blog. Here's a little appetizer via Bespoke Investment Group:
• The rebound in business investment (strongest contribution to growth since Q3 2014) is extremely encouraging, and suggests that the soft patch in US business investment driven by declining Energy sector capex is ending. Business non-energy structures investment was a bit weak but equipment investment was very strong, as were housing-related series.
Capital investment has been something that, on balance, has been sorely missing -- even before the huge decline in oil prices -- during the present expansion. The past several months have seen a pickup, as confirmed by the GDP report. While much of the recent surge in structures owes to the energy patch, the strong equipment numbers (not to mention housing) speak positively about economic prospects going forward...

Saturday, April 29, 2017

A Letter from China Inc.

In the following, I stray into sensitive territory I know for some of my readers. While I expect a little keep-it-on-the-markets-Marty feedback from an unsympathetic soul or two, I must -- in my own defense -- express my own humble view (one shared by economists not captured by political interests) that a true free trade policy (unilateral even) would be the most market (not to mention consumer at all rungs [especially the lower] of the economic ladder) friendly endeavor Washington could pursue.

If you read this with an open mind you may find yourself embarrassed by its simplicity. But, please, don't be too hard on yourself. Most of us simply don't have the time to scratch beneath the surface of economics and we, therefore, take verbatim the stuff couched in ways that make sense at the first, and, alas, only, blush. Truly, the couchers are adept at identifying and exploiting our grandest misconceptions.

Quotes of the Day: Europe's bullish narrative intact...

My quote of the day last Thursday spoke to an improving Euro Zone economy. Looks like earnings support the narrative, as do investment flows:
Europe Starts Earnings Season With a Bang, Leaving U.S. Behind(Bloomberg) -- No false dawn this time. After years of disappointments, European companies are finally living up to market expectations, enjoying their best season in almost seven years as earnings per share grow at more than twice the pace of their U.S. counterparts. About a third into Europe’s first-quarter earnings season, companies listed on the Stoxx Europe 600 Index have so far reported a 24 percent jump in EPS year over year ... 
Investors Are Pouring Money Into European Stocks Like It’s 2015{Bloomberg) -- The evaporation of political risk in Europe is seeing money managers rush into the region’s stocks at a clip not seen since the year the equities last surged to an all-time high. Buoyed by relief over the outcome of the French first-round vote, investors poured $2.4 billion into European equity funds in the week through April 26, the most since December 2015 ...

Friday, April 28, 2017

This Week's Message: To be successful at investing, imitate The Great One. And I don't mean Warren Buffett

Yesterday evening I found myself in deep discussion with a gentleman who, among other things, builds basketball courts. Other than his stated belief that his company is "the Rolls Royce" -- as opposed to "the Volkswagen" -- of court construction, I found him to be generally humble. He told me about a man he once worked for, when he was learning the demolition business (he later founded his own such business), who acted as if he was the inventor of everything having to do with structure destruction. While sharing his story, he chuckled, and said "I wonder how people knocked stuff down a hundred years ago without this genius telling them how to do it". His boss's bravado aside, he admitted that he indeed learned a great deal by watching the man work.

Thursday, April 27, 2017

Bonus Quote of the Day: Yes -- for now -- The Euro Zone is Looking Up!

Despite the Euro Zone's usual geopolitical risk (I say "usual" because the place has been a hotbed of political risk for the past several years), I've been talking up its prospects -- both in terms of its economy and its equity markets -- to clients for months.

Here's Bespoke Investment Group on the EZ's most recent economic data:
Economic data today in Europe has been broadly good as prelim April Spanish CPI beat estimates, Germany consumer confidence beat, CBI reported retail volumes surged (though the more predictive 3m average remains subdued, chart), and Eurozone survey data surged. Consumer confidence matched the cycle high of -3.6, industrial confidence made a new local high and signals industrial production growth of over 6% YoY, and economic confidence suggests GDP growth of 2.5% YoY which would be near 2011 highs. The big disappointment was Spanish unemployment, where the rate missed estimates.
And here's a look at how well Euro Zone equities (using our preferred Euro Zone ETF) have performed relative to the U.S. so far this year:     click to enlarge...

Wednesday, April 26, 2017

This Week's Video: The Not-So-Great Bond/Stock Debate

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Tuesday, April 25, 2017

Quote of the Day: Worthless White Noise

I swear, not a day goes by where I don't catch a headline, or a passing comment from someone who truly ought to know better, that has me thinking precisely what Michael Covel points out in today's quote.

Yesterday, for example, I walked into my office to find my television on. I was surprised, for two reasons: 1. I didn't know it still works (that's how long it's been since I've had it on). And 2. It was turned on.

At the time, Nick was setting up my computer (we're remodeling and last weekend the new carpet happened), he swore it wasn't him. My best guess is that the folks who reassembled the hutch upon which the TV sits tested to make sure they plugged it back in properly and forgot to turn it off. What made it particularly annoying was the sight and sound of CNBC's Rick Santelli (I recall him from years past while I was learning that there was absolutely nothing to learn by watching financial television) working a dry erase board and describing some dynamic about the dollar that deserved hollering at the camera in the most condescending fashion. The problem I have (my palpable annoyance, that is) is my recollection of past rant-filled predictions -- the majority of which of course turned out to be utter intellectualized rubbish.

Not to single out Mr. Santelli (he just happened to be the one on the tube when I walked in), for he's just one of the many whom the media trots out who apparently can't (we know this, trust me, otherwise they'd be trading, never talking at cameras, during the trading session), therefore they teach, or, as the case may be, they preach.

From Covel's The Little Book of Trading (an insightful read, by the way):
White Noise
Watching the news, reading the financial news and listening to the President is not how you make money in the markets. You don't make money by explaining what just happened or by guessing what's going to happen in the future. You don't know what's going to happen in the future, the things that occur in the future that make you money are all things you couldn't figure out were going to happen.
It always makes for an interesting story to say "well this is going to happen because this or that'; that is information everybody already knows, it's already baked into the market price. 

Sunday, April 23, 2017

Quotes of the Day: The predicament of investing...

Early in my career I was fed large helpings of "Modern Portfolio Theory (MPT)". We had this wonderful optimizing software that would place a portfolio on the "Efficient Frontier" and score it based on a variety of risk and return measures. The "Efficient Market Hypothesis (EPH)" is the cornerstone of MPT. It goes like this:
The efficient market hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

Friday, April 21, 2017

Don't (at this point) Fear Frexit...

I want to get out in front of the French election for you, just in case. Why? Because probabilities suggest that should Marine Le Pen and Jean-Luc Melenchon (the nutcase I referred to in this week's message) emerge the victors in Sunday's first-round voting, global markets will take notice -- in un-pretty fashion.

This Week's Message: All You Need To (or Can) Know...

France's first round of voting -- Sunday -- appears to loom over the market this morning. In a nutshell, the legit contenders consist of one candidate who is, frankly, nuts, another who appears to be a Kremlin crony (leave the Euro, anti-NATO, pro-Moscow, campaign funded by loan from Russian bank, and -- unlike her competition -- has been left alone by alleged Russian hacking attempts and "fake news" stories galore) and two relative mainstreamers. Either of the former two taking the first round would likely have European and U.S. markets flashing red at the open come Monday morning. Either of the latter two could have markets in rally mode. Odds makers see Macron (a mainstreamer) the ultimate (involves two rounds) winner, but recent history, to put it mildly, has not been kind to the odds makers.

That's all I have to offer on France for now. Possibly more next week depending on Sunday's outcome.

A personal story:

Growing up, duck hunting and trout fishing were my things -- the latter still is. As it happens, football season and duck season coincide each year. So, back in the mid-70s, every Friday night after playing for the legendary Kerman High Lions -- rather than doing whatever high school football players did on Friday nights -- I'd hop into my oldest brother's heavily-speakered VW Beatle (Dad called it a stereo on wheels) and we'd head out to the Mendota Wildlife Preserve (rockin the whole way to Aerosmith, Neil Young and Ronny Montrose on the 8-track) to get in line with all the other crazies. We'd sleep in the car till 4 a.m. then, after flashing our hunting licenses and paying our ten bucks each at the booth, we'd race to whatever flooded field had been working for us the prior weeks, or to one we had noticed the week before was attracting more birds.

Tuesday, April 18, 2017

This Week's Video: Pound shorts got pounded today...

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Monday, April 17, 2017

Quote(s) of the Day: Just the Facts Ma'am...

During client review meetings -- along with performance results, sector weightings, etc. -- I generally offer up a bit of the data that influence my view of the current market setup. In virtually every instance I follow my assessment with words to the effect: "my view is based entirely on the data I presently have at my disposal. Ask me tomorrow and, as the data may have changed, I may have changed my view."

In other words, I never tell it like you might think I'd like it to be. In fact, I am agnostic when it comes to market direction. Truth be told, I really don't care if the trend is up or down, I only care about recognizing it.

William Dunnigan in New Blueprints for Stocks and Grains had it right back in 1956:
"Let us believe that it is possible to profit through economic changes by following today's trend, as it is revealed statistically day-by-day, week-by-week, or month-by-month. In doing this we should entertain no preconceived notions as to whether business is going to boom or bust, or that the Dow-Jones Industrial Average is going to 500 or 50. We will merely chart our course and steer our ship in the direction of the prevailing wind. When the economic weather changes, we will change our course with it and will not try to forecast the future time or place at which the winds will change."
As did Joe Friday:
"Just the facts ma'am."

Sunday, April 16, 2017

Quote of the day: "Knowing" is Utter -- and Dangerous -- Fantasy!

As I'm sure some of you've noticed, my 'quotes of the day' often run in spurts from the same source. I.e., you're getting slices of whatever I'm currently reading, or of some source that I've gone back to; skimming through my old highlights, hoping to find a worthy 'quote of the day'.

Saturday, April 15, 2017

Quote(s) of the day: Beware the Knowers!

Long-time readers and clients know that we painstakingly, and on-goingly, weigh a wide array of data as we assess the present global long-term setups that guide our asset allocation decisions. How can we not, given our responsibility to our clients!

Friday, April 14, 2017

Should we sweat slumping optimism?

The market action lately has been, as always, interesting. I've stated herein numerous times how a market in bull-mode can shrug off a lot of issues that might otherwise send it reeling.

Considering all that's occurred (I'm assuming you don't need a list) of late, I'd say that the stock market has held up relatively well. So, yeah, nothing in terms of recent market action would have us questioning the prevailing trend.

Thursday, April 13, 2017

This Week's Message: What's Gold Trying To Tell Us?

So much for me dissing the gold bulls! Of course while I've been pointing out less than ideal technicals for the metal, I always disclaim that I make no price prediction -- just talking probabilities. Markets themselves of course don't give a rip about charts. The reason you and I do is because they give us a glimpse into trends in human action/emotion (i.e., what moves markets).

Here's a headline from this morning:
"As a flight to safety into U.S. Treasurys comes in and yields continue to compress, gold becomes a lot more attractive," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management said.
Schlossberg's a guy worth listening to. At least I think so, but that's only because his name was referenced a bunch of times in a book I once read on currencies. 

Tuesday, April 11, 2017

This Week's Video: Comfortably above the danger zones...

In this week's video I illustrate that, from a technical perspective, the market rests comfortably above key areas that, were they breached, might have us re-thinking our allocation strategies going forward.

Now, as I type the Dow's off 120+, while bonds, gold and the VIX (tracks implied volatility in options contracts) are rallying hard. Of course the headlines suggest that this is due to heightened geopolitical risk from the Korean Peninsula to the desks of French-election odds makers -- and I'm certainly not suggesting otherwise. However, if it weren't missiles and Marine Le Pen, I promise you there'd be other headline explanation(s) for the triple-digit Dow declines that occur time and again during the course of every year (be it a bullish or bearish setup).

My point? Healthy markets rest (consolidate) from time to time -- the operative word being "healthy" -- regardless of the presumed catalyst for the pause. And, for the moment, the data tell us that that's the proper characterization...

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Sunday, April 9, 2017

Missiles, the Jobs Miss, and Gold's Signal

Last week I challenged (by parsing some data) one economist's assertion that stocks were doomed and bonds and gold would be the best places in which to hunker down. Looks like Ms. Pomboy has company -- at least with regard to gold:
BARRON’S ROUNDUP: Gold to Rally (Bloomberg) -- Gold has rallied almost 10% this year and it’s likely to keep climbing as market  volatility picks up and real interest rates remain subdued, Barron’s reports... 
My interest in gold at the moment is not in whether it'd be a viable long position in client portfolios (being that it technically remains in a down trend), but in its inherent qualities as an economic barometer.

Friday, April 7, 2017

This Week's Message: Ironically Ironic

Here's an article I wrote back on August 27, 2013. Ironically, the stuff the market was weighing then is essentially the same stuff it's weighing today. What's ironically ironic is that my 2013 article pointed out that the issues then happened to be the issues of 2011 as well.

The red type is me simply updating where needed for 2017. The numbers/returns in red reflect the move from 2013 to current. Feel free to do the math from 2011 to current if you like.

As for the excerpt from our December 2012 letter, I wouldn't change a word (please read it in its entirety)!

Have a great weekend!

P.s. Last week's events deserve a more technical assessment, which I'll follow up with shortly...

Wednesday, April 5, 2017

This Week's Video: Is the bond market's recent outperformance a harbinger of bad things to come?

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Tuesday, April 4, 2017

Quote of the Day: U.S. energy producers need you to keep buying stuff from China...

As you're deafened by the rhetoric, understand this basic reality: if Chinese producers desire to make stuff to sell American consumers at prices much lower than the same stuff made in America would demand, Chinese producers really want U.S. dollars. Which means Americans produce stuff Chinese folks want to consume, and/or assets they want to invest in.

So, as you eyeball the made in China label on your next physical purchase, understand that there's no need to suppress those patriotic impulses. For, in buying that China-made item you'll be supporting the U.S. energy industry. Not to mention all of the other U.S. merchants who'll capture a slice of what you saved in the process.
 China Surpasses Canada as Biggest U.S. Crude Oil Customer: China's imports of crude oil from the U.S. quadrupled in February, vaulting the nation past Canada to the top of the list of American oil customers. Bloomberg....

Sunday, April 2, 2017

A Blah Energy Picture and Its Silver Lining

Energy stocks (10% of our typical equity portfolio) have been a tough place to be -- in an otherwise favorable market -- so far this year. The setup, from a purely cyclical standpoint, makes a lot of sense to me. The "tough place to be" aspect clearly speaks to the fundamental supply setup. However, the setup from a fundamental demand standpoint is bullish and speaks to the optimism screaming from much of the recent economic data.

Saturday, April 1, 2017

Quote of the Day

As you've noticed, I take every opportunity to express the fact that I shun much of the financial news and virtually all mainstream investment opinion pieces.

My view mirrors that of Jack Schwager, the author of the excellent Market Wizards series:
If you listen to anybody's opinion, no matter how good they are or how smart they are, I guarantee you it's going to blow up in your face. You just cannot get ahead by listening to other people's opinion, you have to generate your own ideas.
Of course the above is advice for those who manage portfolios: I.e., the one exception -- for you subscribers who happen to be our clients -- would be the opinion of your adviser!👴