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!👴