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!
Marty

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!👴

Friday, March 31, 2017

This Week's Message: Gotta let the data speak for itself...

So, I virtually never read articles anymore with sensational titles (actually, I seldom read any 'articles' anymore). However, I can't help but read a headline when it somehow sneaks onto my screen.

This title caught my attention this morning:

Wednesday, March 29, 2017

This Week's Video: The Weight of the Evidence

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, March 28, 2017

Quote(s) of the day: Wisdom of a great speculator....

As I preach here incessantly, to be successful at investing one must develop a sense for the macro, and diligently dull the senses that might otherwise be piqued by the sensationalizing media.

Dixon G. Watts, the 19th Century speculator (one of history's best and most respected), was a man of great wisdom:
It is better to act on general than special information (it is not so misleading), viz., the state of the country, the condition of the crops, manufacturers, etc. Statistics are valuable, but they must be kept subordinate to a comprehensive view of the whole situation.
A man must think for himself, must follow his own convictions. George MacDonald says: “A man cannot have another man’s ideas any more than he can another man’s soul or another man’s body.” Self-trust is the foundation of successful effort.
That equipoise, that nice adjustment of the faculties one to the other, which is called good judgment, is an essential to the speculator.


Monday, March 27, 2017

Move along...

Dow's down 165 as I type. All the headlines blame Congress's failure to replace the Affordable Care Act. The market dipping for that particular reason is curious, given this S&P 500 chart that begins the day the ACA was enacted:    click any chart to enlarge...


Friday, March 24, 2017

This Week's Message: Good traders and good investors have more in common than you think...

In Tuesday's video we took a look at that day's pummeling of the sectors we favor:     click any chart to enlarge



Ugh! All things cyclical took a bath, while the defensive stocks (the stocks you buy when nobody's buying cars and computers) fared just fine.

So, clearly, the market was signaling that all's not as it may appear. Right? Well, yeah, you'd have to conclude that if the stocks of companies that benefit from a growing economy, higher interest rates, a little inflation, etc., are getting creamed, we maybe have issues. Now, of course one day's action does not a trend make. However, when we're talking a 3% hit to the sector, financials, that stands to perhaps benefit the most from higher rates, etc., we simply can't ignore it. Or can we?

Tuesday, March 21, 2017

This Week's Video Commentary: How meaningful -- for you and me -- was today's selloff?

Once playing, click the icon in the lower right corner for full screen. Focus occurs after a few seconds:

Quote(s) of the Day: A thing in motion...

As is forever the case, the financial media isn't wanting these days for characters who would have us believe that they can foretell the stock market's future. Which, of course -- as markets are people -- requires that they possess some magical insight into the coming collective decisions of the world's consumers, investors, traders, politicians, etc.. Ironically, the proof that they unequivocally lack such skill is the simple fact that they claim to have such skill. That is, such skill, kept to oneself, would make one far and away the richest self who's ever lived. And, yes, while ego by itself is no doubt at play, make no mistake, these would-be seers desire to be rich.

Saturday, March 18, 2017

History likes what we've seen so far...

The following from Bespoke Investment Group speaks to the setup we've been discussing here on the blog:

Knowing yourself can be tough...

Of all of the painstaking research and analysis we do here at PWA, there's an area of interest that holds huge sway over our approach to individual client portfolio management. An "area" that we believe has major implications in terms of the prospects for favorable long-term results on a client-specific basis. Call it risk tolerance, or perhaps behavioral finance, if you like; I think of it in terms of client predilections, preconceptions and degrees of impressionability.

Friday, March 17, 2017

Quote of the Day -- AND -- The Budget Cut/Border Tax Contradiction...

Here's Don Boudreaux responding to a reader who can't see through the understandably-presumed negative effects of a government budget cut on certain groups to the positive effects on others:
When budgets are cut, it’s easy to see the likes of government employees who lose jobs, farmers who get smaller subsidy checks, arts exhibitions that must now survive exclusively on private contributions, and poor people whose welfare payments fall.  But the analysis and conversation nearly always stop there.  If cutting funding for some government-funded activity is found to cause some hardship (and which such activity isn’t so found?), cutting government funding of that activity is typically deemed cruel and wrong.  But what is too-seldom asked is: As compared to what?  What will those who now keep more of their incomes spend this money on?  In what ways will the money now left in the private sector be invested?  What new products, businesses, and economic opportunities might be created now that the state no longer seizes these resources from those who create or earn them?  And how will system-wide incentives change when government reduces taxes and spending?
I know for certain that no small number of my readers sympathize, passionately, with Don. I also strongly suspect that no small number of that no small number will fail to apply the very same logic to a proposal that would levy an across-the-board tax on foreign imports.

If you believe that society is harmed when government taxes one group to subsidize another, how in the world can you believe that society benefits when government forces higher goods prices (via a border tax) on all groups to subsidize a few ginormous politically-powerful corporations?

This Week's Message: The Fed Funds Rate Reaction

On Wednesday, on cue, the Fed raised its benchmark interest rate a quarter-point. However, the members effectively signaled in their commentary -- and Yellen in her press conference -- that while things are improving, they're doing so at a pace that does not warrant what would be deemed aggressive monetary tightening.

Perfect! That allows bonds to rally, gold to rally, developed foreign markets to rally, emerging markets to rally, staples to rally, cyclicals to rally, utilities to rally and REITs to rally. Man Oh Man!

Wednesday, March 15, 2017

This Week's Video Commentary

Once playing, click the icon in the lower right corner for full screen. Focus occurs after a few seconds:

Tuesday, March 14, 2017

The Market Does What It Wants...

As I type, it's virtually 100% certain that the Fed is going to bump up its benchmark interest rate tomorrow. This morning the NFIB Small Business Optimism Index for February was released. Here's from Bloomberg:
...the index remaining above 105 for three consecutive months indicates the continuation of a very high level of optimism for small business owners.
Also this morning we saw the release of the February Producer Price Index. Bloomberg again:
Year-on-year, overall producer prices are up 2.2 percent for the hottest rate in nearly 5 years.
Today's releases jibe perfectly with the balance of indicators that suggest the economic outlook is bright, and with the to-be-expected attendant (albeit moderate ["the hottest" in a remarkably low-inflation five years]) inflation pressure, the Fed has a very green light to push the needle on interest rates.

So then, with upbeat economic prospects and naturally higher interest rates, you should bet the farm today that the interest rate-sensitive sectors are selling off and the cyclicals are soaring. Right? Well, nope...

At this moment, bonds are up half a percent (in price, meaning yields are lower), utilities are break even and gold's up 2 bucks.

As for the stuff that's supposed to rise with a good economy and higher interest rates, financials, industrials, energy, materials and technology are down .80%, .93%, 1.44% and .50% respectively. Go figure!

Jesse Livermore, whose story is arguably one of Wall Street-history's most fascinating, and instructive -- he literally made millions in the early 1900s when he followed his own rules, and blew up time and time again when he didn't -- spoke to the wisdom that ultimately told of his own undoing:
The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight.
While we can't know that this go-round the stuff that makes sense -- given the perceived conditions we find ourselves in -- will ultimately be the stuff of reality, one thing's for sure, in the near-term the market will do whatever it wants, for whatever its reasons.

My best guess is -- given the present setup -- that a little (or a lot) selling into the news may prove healthy in the weeks/months following it.

Sunday, March 12, 2017

Quotes of the Day: Border Tax Winners and Losers

Like virtually any other government proposal, Congress's "Border Adjustment Tax", in terms of its ultimate impact on U.S. individuals and institutions, is, at best, difficult for discerning folks to frame. I have to qualify with "discerning" because of course there are those who immediately presume that taxing foreign imports is good because "they do it us", "it'll inspire us to buy American", "it'll create jobs" and so on. Of course if all that were true, it would be reality, as opposed to what it's mostly been for eons -- campaign-stump rhetoric. In reality, there's much more negative potential and, therefore, political risk than meets the eye. 

Without delving into currency fluctuations, retaliation from foreign trading partners, crony capitalism, etc., one way to handicap who the winners and losers of the taxing of imports by 20% would be is to simply look at the players who are for and against it. 

Keep in mind, the U.S. -- with two-thirds of its GDP owing to consumer spending -- is a resoundingly consumer-driven economy. 

Here's what Americans for Affordable Products (a coalition of 120 retailers [make their money via the consumer], which includes the likes of Best Buy, Dollar General, Macy's, Rite Aid and Walmart) think of the proposal:
We oppose any border adjustment tax (BAT) because it will increase the cost of clothing, food, medicine, gas, and other essential items that Americans rely on," the group says on its website. "Consumers shouldn’t bear the burden of this new tax while some corporations get a tax break.
And here's from a Knowledge at Wharton interview with Wharton's own Ann Harrison and Penn Law's Michael Knoll:
... big exporters, including technology companies and large industrial companies like General Electric could have nil or even negative tax liability, he said. Indeed the chief executives from 16 companies, including GE, Oracle and Pfizer, sent a letter to congressional leaders this week in support of the GOP tax plan.
Careful what you ask for...

P.s., I feel the need to qualify the "winners" column: The advocating by the GEs, etc., is, in my view, simply the result of CEO myopia (fixation on near-term quarterly earnings results). The ultimate ramifications of hammering the U.S. consumer to maybe balance Washington's this or that has to ultimately bode poorly for the would-be-winner as well.

Saturday, March 11, 2017

Quote of the day: How not to book a 50% gain...

A relatively new client -- one with whom we've yet to experience a true down market -- asked me yesterday how we'd handle things when the market experiences its next big selloff. I love such questions, for two reasons. One: they affirm for me that my client understands the nature of things; i.e., that stocks will forever experience draw downs and bear markets. And two: they give me the opportunity to outline the ills of market timing for long-term investors.

I explained that we'd maintain our equity/fixed income mix which we previously determined -- and confirmed yesterday -- was, for him, an emotionally-palatable position. We then discussed how we meld fundamental and technical analyses to determine what we believe to be the most prudent sector and regional equity mix. As the cycle evolves and the data offer their signals (dictating whether our tilt/bias is toward cyclical vs defensive sectors), our sector allocation evolves as well.

Again, the notion that the long-term investor can or should attempt to play the price swings is a dangerous notion indeed -- as I illustrated with this chart in last week's video:   click to enlarge...



And as Chris Ciovacco stated in his weekly presentation:
It is not possible to ever book a 50% to 80% gain if we over-trade and overmanage during a strong bullish trend...

Friday, March 10, 2017

The Week's Message: Only heed those with skin in the game...

Reagan budget director David Stockman has a knack for getting himself in the headlines. Seriously, take a look at his latest work (this is just me Googling for a few minutes):


Wednesday, March 8, 2017

Market Commentary: So far, a lot like 2013 (video)

This week's video is short and simple. Ironically, I've always found the basic stuff to be the stuff most critical to long-term investment success. Be sure to watch this one.

After clicking the play button click the icon in the lower right corner for full screen. Focus will occur a few seconds later.


Quote of the Day: Death Wishes -- or -- Deficit Spending

As I've expressed herein a thousand times and in a multitude of ways, markets are people. Famed trader, Richard Dennis, who, in his heyday was far more interested in David Hume than he was the details of any employment report, while expressing where his interests lied, spoke to the force that inspires markets and moves investors/traders to all manner of self-destructing behavior:
I think it's far more important to know what Freud thinks about death wishes than what Milton Friedman thinks about deficit spending.

Monday, March 6, 2017

There's Certainly Uncertainty Around the Impact of Higher Interest Rates

The Federal Open Market Committee meets next week, and futures pricing says a rate hike is a virtual certainty:     click charts to enlarge...



What's is clearly uncertain on Wall Street is the impact higher rates will have on the economy. The chart below shows us that futures speculators are heavily short treasury bonds (betting rates are going up and bond prices are, thus, going down) -- and that asset managers who trade futures are, on the other hand, heavily long (suggesting rate hikes will be considered virtually out of the blocks as constraining, and leading to lower yields and, thus, higher bond prices):



While markets can forever surprise us, my best guess is that the speculators are ultimately on the right side of this particular trade. The economic data generally supports their position, and, while showing a slightly stabler picture of late, on balance, the technicals are in their favor as well:






Sunday, March 5, 2017

Beware the Junior-High-Genius! -- And -- Pain is Essential

"If Washington rolls back financial regulations, could we see a replay of 2008?" That (words to that effect) was a question posed to me during a meeting last week. My immediate response was
"no. Not, that is, with the current players in the banking system. Not that shenanigans of the sort -- regardless of the prevailing regulatory regime -- aren't indeed likely to repeat, it's just that I suspect the likes of 2008 (a financial sector meltdown spawned by careless securitization of mortgages, and layers of speculation on those securities) will have to come at the hands of future geniuses who now attend junior high school, and who are, thus, oblivious to the happenings of 9 years ago" (words to that effect). I then proceeded to ramble on about the history of bailouts and my belief that had the powers-that-be not rescued the politically-powered bankers/investors of old from their folly, Wall Street's (I generalize) confidence that it could privatize its gains (it keeps em) and socialize its losses (taxpayers forced to come to its rescue) would never have been ingrained in its psyche.

Saturday, March 4, 2017

This Week's Message: I'm not feeling late- '90s euphoria right about now -- And -- The Prudence in Political Agnosticism...

It's interesting, I keep hearing "experts" suggest that investors are way too giddy about the stock market these days. But, honestly, that's not my observation. While, sure, folks have to be feeling good about the present state of affairs, I'm certainly not sensing giddiness in our clients as we conduct our semi-annual reviews. Again, not that they're not liking their results these days, but nobody's threatening to mortgage the farm and throw it all at the stock market. I'm definitely not feeling the late-'90s right about now.

Friday, March 3, 2017

My Friend Dick

There's a school of thought that says if you want to be successful in business, discover what it is that truly sets you apart from the competition; the one thing that you can do better than virtually anyone else. I have this friend who embodied that concept. This gentleman, either through thoughtful self-analysis or instinct (I suspect the latter), discovered at an early stage that he indeed possessed a one thing that made him unique in his business. And this gentleman, my dear friend Dick Wetnight, exploited his one thing to the fullest -- while he outsourced virtually all of the minutia and the mundane to others. I've often referred to him as a master delegator; a mastery that I've come to understand is absolutely essential to success in business.

Wednesday, March 1, 2017

Market Commentary: What does breadth say about the current trend?

Click the icon in the lower right corner for full screen. Wait a few seconds for focus:

Quote of the Day

Big rally today! As I type the Dow's up 330. Per last week's message, some on Wall Street, as well as main street, are wondering when the inevitable fall will come.

Yep, for sure, there'll be a fall. In fact, there'll be many this year -- I'm certain. That said, as I continue to chart for you, there's also the current trend, and, per Jesse Livermore below, that's what smart investors focus on:
The big money is not in the individual fluctuations, but in the big movements. That is, not in reading the tape, but in sizing up the entire market and its trend.

Thursday, February 23, 2017

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

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.

Wednesday, February 22, 2017

Saturday, February 18, 2017

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.

Thursday, February 16, 2017

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.

Wednesday, February 15, 2017

Market Commentary: Trend Intact (video)

Click play button then icon in lower right corner for full screen. The video will come into focus after a few seconds:

Tuesday, February 14, 2017

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.


Saturday, February 11, 2017

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. 

Friday, February 10, 2017

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)

Tuesday, February 7, 2017

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. 

Monday, February 6, 2017

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.

Friday, February 3, 2017

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):

Thursday, February 2, 2017

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]).

Tuesday, January 31, 2017

Quote of the Day

Nassim Taleb in his excellent book Antifragile stresses the point that I constantly stress herein about the market (did just yesterday in fact):
In the complex world, the notion of “cause” itself is suspect; it is either nearly impossible to detect or not really defined— another reason to ignore newspapers, with their constant supply of causes for things.


Monday, January 30, 2017

Quote of the Day: What the tape is 'presently' telling...

Jonathan Krinsky, chief market technician at MKM Partners, echoes the last sentence in my morning blog post:

The long-term bullish case is still intact. The bumpy policy road was expected with Trump in charge. Investors are betting once Trump is done pleasing his base with executive orders, he'll become the dealmaker-in-chief on taxes and infrastructure and the other market-pleasing policies. Krinsky says the tape is telling you this much.
"The evidence for a meaningful top is lacking," wrote the technical analyst. "We would welcome any weakness as a buying opportunity, rather than viewing it as the start of something bigger."


The Administration's 'Market' Faces Face-Off

As I've suggested here a number of times since the election, from an economic/investment standpoint, the new administration wears two distinct faces.

Its pro-market face expresses a desire to deregulate industry, demystify the corporate tax code and rebuild some infrastructure. Its anti-market face expresses a contempt for existing trade agreements and a defiance of international protocol.

Sunday, January 29, 2017

Quote of the Day: Declining Bullishness is Bullish

Like the folks at Bespoke Investment Group, I feel better about the market when the majority of individual investors don't:
While consumers continue to feel more and more positive about the economy, the post-election jump we saw in bullish stock market sentiment has faded quickly. This week’s AAII bullish sentiment reading of individual investors dipped down to 31.58%. It has now given up nearly all of its post-election bump. As we always mention, this constant skepticism about the market from individual investors is actually a good thing for the long-term health of stocks in our view.
In case you missed it, here's the link to my January 14 post, where I dug into the topic. Here's a snippet:
Fascinating! In all nine instances when bullishness was reaching its lows -- and yes it was indeed low in those instances (under 40%) -- the market was either beginning. or in the midst of, an impressive upward run. So, apparently it does indeed pay to be the contrarian -- just more so when the crowd's the most gloomy.  

Saturday, January 28, 2017

Thinking on Protectionism

Aside from the monster problems with protectionism (like the hit to our small local businesses who employ 2/3rds of our workforce, and exist largely because you and I can buy items from countries who produce them the cheapest [saving money with which to lavish onto our local employers] -- not to mention the subtle robbing of our ability/freedom to do business wherever and with whomever we choose), it threatens the stories behind the headlines below (save for the last one). Stories, by the way, that (save for the last one) not only make America richer, they make it safer. Per (it's believed) Frederic Bastiat:
Where goods don't cross borders, soldiers will.

Thursday, January 26, 2017

This Week's Message: Should You Fade the Rally?

I've been asked a few times lately if, from a trading (as opposed to a long-term investing) perspective, I'd fade this rally. Meaning, at these levels, could a trader make money betting on a fall?

The thing about the market is that it can fall from any height, be it Dow 20,000 or Dow 2,000. And whether it hits that level from above or below doesn't help us all that much in terms of guessing where it goes from there.

Quote of the Day: "I Ain't Worried"

Douglas Merlin Carlson -- the man famous for his Rustic Rub seasoning -- shared his sage wisdom with me today:
I ain't buyin', I ain't sellin', so I ain't worried about it!

Wednesday, January 25, 2017

Quotes of the Day: The Bullish Condition -- And -- Market Metaphysics

Did the Dow settle above 20k today because of the goings on in Washington? Deregulation, lower taxes, infrastructure? Very market-friendly stuff! Okay, but what about "border adjustment taxes"? What about the threat to companies that if they move labor across a border to gain productivity and market share, they'll pay oh so dearly? What's market friendly about that? Hmm...

Could it be that the market (millions of investors and traders collectively) is simply in bull-mode and hears only what a bull would want to hear?

I feel that old Jesse Livermore quote coming on:
Not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. And all a man needs to know to make money is to appraise conditions.
Or, has the market done the math and determined that the potential good outweighs the potential bad? Or perhaps the potential good has more potential of coming to pass than does the potential bad?

But, you know, you just can't know. As we've explored herein a thousand times, the factors that impact the world's markets and economies are too numerous to count, let alone assemble and base predictions on.

Dean Moriarty, may as well be writing about the collective global market as he writes on metaphysics:
... there is too much to see, and in the looking is found the part, but not the whole. It is known that the part is in the whole, and to know the whole you have to see all of the parts. But the parts are too small to be seen all at one time. 

Monday, January 23, 2017

Thought of the day: If we act like China, won't we live like China?

I keep hearing about how other countries have been "eating our lunch" and somehow doing massive harm to the U.S. worker. I'm puzzled???

The U.S. has been really the world leader, the standard-bearer, if you will, for international trade. Among large developed nations, we've set the tone, championed the agreements, pushed for more international commerce.

Sunday, January 22, 2017

Quote of the Day: U.S. Consumers, Employers and Investors will be the ultimate payers of a border tax...

We all know (right?) that if we go the way of a "border tax" the U.S. consumer will pay the price, via higher prices. And the small domestically-driven employer will pay the price, via lower revenues (as its customers have less to spend). The U.S. investor stands to pay a dear price as well:
Overall, U.S. equities have more to lose than their Chinese counterparts in a trade war, at least in the view of Morgan Stanley’s Garner. While almost 10 percent of companies in the MSCI U.S. index derive at least a tenth of their sales from China, less than 2 percent of firms in China can say the same about the U.S., according to Morgan Stanley.

Saturday, January 21, 2017

Quotes of the Day


Be thoughtful as you take in the headlines, financial or otherwise:

Robert Mortorana, CFA on web-clutter:
It’s a necessary skill when confronted with the hype and sensationalism now masquerading as news: press releases that spin the facts, earnings reports that ignore basic arithmetic, and management explanations that test the boundaries of probability.
It is worse now that investment blogs have embraced the golden rule of tabloid journalism: simplify, then exaggerate. Pseudo news and pseudo analysis clutters the web, making it harder to stay well informed.
Ben Carlson, CFA, headline-interpreting:
Headline: [Democrats/Republicans/current or past president] Caused X% of Economic or Stock Market Growth
How to read it: Presidents or political parties don’t personally control economies or stock markets made up of millions of participants and trillions of dollars all wrapped up within a complex adaptive system. These things don’t come with levers that you can pull to make them rise or fall.

Friday, January 20, 2017

This Week's Message: Recession Odds Very Low

Well, here we go. To say the least, we've got some interesting, exciting, what have you, times ahead. My aim herein is to not inject politics -- other than their impact on financial markets -- into the discussion. My aim is to report to you how the world looks within the context of markets and economies.

Wednesday, January 18, 2017

Market Commentary: Past setups heading into inaugurations (video)

Quote of the Day

Writing on recent commentary surrounding Britain's currency, the ever-insightful blogger Polemic Paine perfectly describes what ultimately moves markets -- and why my office TV is virtually never on:
I have come to the simple conclusion that the reason that the commentary is so wrong is because very, very few of those commenting actually trade the thing. The reason prices move is because people buy or sell in differing ratios upsetting the equilibrium of the assumed fair price. The reasons that people trade is hugely complex. The drivers behind the individual trading decisions can vary massively. Commentators can not accurately define why GBP is lower or higher unless they have actually spoken to a person who has traded it. Here I am not talking about an FX salesperson who has transacted a trade for someone else, nor even a spot FX trader (who manages flow but rarely knows the ‘why’)  but the fund manager, central bank, sovereign wealth fund  manager, hedge fund or real money PM, or collection of electrons in an algorithm who actually decided to swing the bat. And funnily enough, practically none of them will ever a) want to tell you b) want the fact that they have traded be known in the first place.

Tuesday, January 17, 2017

Quote of the Day

As with every time the Dow has reached a record level throughout my career (it closed at 1,134 on my very first day [yeah, I'm that old]), folks are asking me if the market can go higher from here -- some are outright telling me it can't.

Famed trader Alexander Elder says to be very careful arguing with the trend:
Each price reflects the latest consensus of value of market participants. Putting on a trade challenges that consensus. A buyer disagrees with the collective wisdom by saying the market is under priced. A seller disagrees with the wisdom of the entire group, believing the market is overpriced. Both the buyer and the seller expect the consensus to change, but meanwhile they defy the market. That market includes some of the most brilliant minds and some of the deepest pockets on Earth. Arguing with this group is dangerous business, and it has to he done very cautiously.

The Lament of a Great Economist -- And -- The Motivations of the Appeasing Economist

Here's a snippet from Don Beaudreaux's excellent January 2nd blog post, The Lament of the Merely Decent Economist:
Any decent economist can point to tariffs and note that the result is the protection of some jobs and firms at the expense not only of other jobs and firms (and of consumer welfare), but also at the expense of the economic openness and dynamism that are essential for sustained economic growth.  But it takes a Very Special economist to craft an economically coherent account of why the man-in-the-street is, after all, correct that tariffs are a boon for, rather than a burden on, the economy.
So why would an economist strive to become "Very Special", when becoming such exposes him/her to the decent economist, and the freshman econ student of a decent econ professor, as a manipulator who preys on the average citizen's lack of a basic understanding of economics? Well, he/she gets appointed to high posts (as his manipulations support the interests that support the political ambitions of the high post appointer), becomes a journalist for a politically-motivated publication, gets quoted, gets attention, rubs elbows, etc. While we the people get, excuse me, screwed!



Saturday, January 14, 2017

This Week's Message: When it pays to be the contrarian...

Maybe a dozen times a year a client will tell me about a book he/she read, or send me a link to an article or a YouTube presentation where some really smart individual who once uncannily predicted some cataclysm (or so somebody claims [typically  the soothsayer him/herself]) offers up yet another gloomy prediction. In perhaps less dire fashion, the financial networks forever parade those stock picking celebs who, with great condescension, pick apart the case that stocks -- as a group -- can move much, if at all, above present levels.

Now who's seeking to put U.S. workers at a disadvantage?

I have two questions for Sean Spicer, spokesman for the President-elect, in response to (emphasis mine):
Asked whether an auto border tax could impact Canada, President-elect Donald Trump’s spokesman, Sean Spicer, told reporters their policy isn’t specific to any one country. “When a company that’s in the U.S. moves to a place, whether it’s Canada or Mexico, or any other country seeking to put U.S. workers at a disadvantage,” Spicer said on a conference call Friday, then Trump “is going to do everything he can to deter that.”

Tuesday, January 10, 2017

Quote of the day: It's discipline!

While markets are complex and may be approached from a wide variety of angles, there is one common denominator among the world's best investors and traders, it's discipline. And my how the world's best exploit the lack thereof of the crowd:

The words of one of them:
As a matter of fact, other market participants want you to be undisciplined and impulsive. That makes it easier for them to get your money.
Alexander Elder


Friday, January 6, 2017

This Week's Message: Trade

Over the past couple of weeks we've looked at a wide array of economic indicators, assessed the trends in each sector of the economy and noodled over the current setup for the equity market going forward. So, here I've been sitting for awhile, thinking about what I might offer up in this week's message that wouldn't be too redundant. Hmm....

Wednesday, January 4, 2017

Market Commentary (video)

My plan for 2017 is to limit the videos to one per week -- save for those extra-volatile weeks (and I suspect there will, as usual, be plenty) when a quick video will be the most expedient way to reach out. They'll be tailored to those of you who appreciate a technical look at markets. Although, I'll generally touch briefly on the economic/fundamental picture as well:

Sunday, January 1, 2017

Quote of the Day

While it's my practice herein to constantly distinguish for you the investor from the trader, I find the core characteristics that distinguish the successful from the unsuccessful in each endeavor to be virtually the same. From Kennedy and Gorman's insightful Visual Guide to Elliott Wave Trading:
......psychological factors that prevent traders from becoming consistently successful: lack of methodology, lack of discipline, unrealistic expectations, and lack of patience.
I suspect the above applies to more in life than just investing and trading...