Battle over projected economic growth between the fixed income folks and stock analysts has resulted in some wide variations. Choices range between the 2% "new normal" with a deflation twist, or the much stronger projections by equities folks and their vision of a new profit cycle. It is hard to fight people such as Bill Gross of Pimco, who coined "new normal", since he has probably been the best trader on the macro side over the last two years. He is buying long term treasuries and believes the economy is just not going to have the ability to muster any sustained push due to the huge inventory of bad debt and increased tendency for public savings. The stock market insiders see great performing companies, cash on the sidelines ready to roll, and M&A activity rebounding.
Now Gross is always talking his position on Bloomberg but his outlook is a bit more realistic than the stock pushers who have had proven quite dramatically their skills rely on a great underlying secular bull, which they had for so long. The buy and hold mentality of a generation will have its moments for shorter periods, but the new dog has a much shorter chain and there is not much slack left. Besides, investing will mean trading more frequently over the coming years and that is not a model used to gain the public's confidence or an eagerness to invest. In and out is hard for 41Ks but easier for the trading industry. So a much more rolling trading affair will wear on the general investing public as their long term investments stay flat as Pimco's prediction of modest growth presents few opportunities for increased employment and overall economic expansion.
Tuesday, October 6, 2009
Monday, September 28, 2009
Old Is New In Investing
Few new interesting ideas lately on how the post crash market will reconstruct itself. Now everyone knows how various sectors of the economy have suffered, and finding new arguments for investing is tough. The contrarian view or "climbing a wall of worry" has become the primary explanation for the equities rally since March. Investing experts have also reverted to the "lots of cash on the sidelines" reasoning which identifies the astonishing insight managers use every day in plowing under billions of dollars. More clever analysis might find other reasons for the reluctance to invest, but scared shitless does work.
The risk models, which caused so much grief for hedge funds, had a poor understanding of illiquidity in declining markets. But they have no problem with anything in rising markets. Just in case, some have now been replaced by models which employ sophisticated guessing techniques as to which way the markets will turn next. This is done by rapidly analyzing all the potential current information, positive and negative, and then throwing out the negative. So far it is working.
But the most reliable historical reasoning tool for investing in stocks must be the " where else can one go model". This reduces all analytics into a choice as the where best to apply carefully honed skills in betting. Pick a sector of the economy that is working. Of course that would exclude most banking, retail, autos, and construction. Then pick the best performing company stock in that sector and hope all the cash on the sidelines chases your position. This worked for years but can end badly.
The risk models, which caused so much grief for hedge funds, had a poor understanding of illiquidity in declining markets. But they have no problem with anything in rising markets. Just in case, some have now been replaced by models which employ sophisticated guessing techniques as to which way the markets will turn next. This is done by rapidly analyzing all the potential current information, positive and negative, and then throwing out the negative. So far it is working.
But the most reliable historical reasoning tool for investing in stocks must be the " where else can one go model". This reduces all analytics into a choice as the where best to apply carefully honed skills in betting. Pick a sector of the economy that is working. Of course that would exclude most banking, retail, autos, and construction. Then pick the best performing company stock in that sector and hope all the cash on the sidelines chases your position. This worked for years but can end badly.
Monday, September 21, 2009
Up Good Down Bad
Just about every Bear has brought down their flag and conceded the worst is over, that economic conditions, while still lousy overall, will probably prove the rally in stocks is valid. Repeated surges to new recovery highs has left no other apparent explanation for the weary.
Macro views of market activity are usually traveling at about half the speed of professional trade ideas, but even for larger managers, the turning of big positions, promotes directional plays, as it makes life so much easier. The hedge industry is obviously attached to the bull side because it is easier to invest trade than it is to trade trade. Their recent performance recovery this year is evidence again there are few great thinkers running the biggest of funds. Making money on the up and getting hammered on the down says it all.
The zero rate interest rate policy of the Fed has helped stocks to rally simply as a function of providing one of the few liquid investment opportunities. The lack of sellers after such a large liquidation cycle of 2008 and early 2009, has amplified price moves hinged on investment strategies chasing lower prices. Extrapolating a recovery trend and possibly much more is what the herd will always follow and has historically been the story for stocks. But zero rates may create a dilemma in the way things used to work as current successful Treasury auctions continue to show a world of risk aversion. A policy of simply saving the higher orders of banking/investment firms does not insure economic growth. Injecting cash and cutting overhead does work but with obvious limitations.
This rally is a trade first with the complications associated with rapid deceleration when it ends. The ensuing scramble with banners declaring the second round of the world is ending will be as shallow as the current victory celebrations.
Macro views of market activity are usually traveling at about half the speed of professional trade ideas, but even for larger managers, the turning of big positions, promotes directional plays, as it makes life so much easier. The hedge industry is obviously attached to the bull side because it is easier to invest trade than it is to trade trade. Their recent performance recovery this year is evidence again there are few great thinkers running the biggest of funds. Making money on the up and getting hammered on the down says it all.
The zero rate interest rate policy of the Fed has helped stocks to rally simply as a function of providing one of the few liquid investment opportunities. The lack of sellers after such a large liquidation cycle of 2008 and early 2009, has amplified price moves hinged on investment strategies chasing lower prices. Extrapolating a recovery trend and possibly much more is what the herd will always follow and has historically been the story for stocks. But zero rates may create a dilemma in the way things used to work as current successful Treasury auctions continue to show a world of risk aversion. A policy of simply saving the higher orders of banking/investment firms does not insure economic growth. Injecting cash and cutting overhead does work but with obvious limitations.
This rally is a trade first with the complications associated with rapid deceleration when it ends. The ensuing scramble with banners declaring the second round of the world is ending will be as shallow as the current victory celebrations.
Monday, September 14, 2009
US/China Juiced
US/China trade fight will certainly gain attention especially when there has been a juicing of stocks and commodities by trading operations filing behind huge speculation plays coming out of the China. The double down bets in areas such as technology stocks could become a exceptionally volatile unwinding affair if there is a trade event not foreseen by the information edge boys. This along with China's increasing threat to all financial markets as they increasingly juggle huge stimulus programs, needed to keep their economic positions afloat, next to the need to keep the masses from scaling the walls.
Tuesday, September 8, 2009
Murky Rally
Stock analysts' projections of the inevitable rise and run of stock prices due to their claim of an undervalued stock market has continually contributed to the rally which has battered the Bears, and a group held in such low regard, I am talking about the analysts now, that have been able to survive on unemployable murky skills, almost as murky and unemployable as economists. But there they are, pumping stocks despite all the leaking waterlines of nearly every sector of the economy. They trot out analogue and historical earnings ratios of now broken industries and place a rally sticker on anything that is below their valuations.
Of course it is crap. But crap is the fantasy which powers the very essence of the Wall Street investment community, make up a story, securitize it, only take what you can steal, and then sell useless insurance against a raid on fantasy values where there is no market, just their mark. Lifting bales of stimulus money has not been easy when also worrying about public image, and a system, now gamed forever by forceful Fed and Treasury policies which have come to prove what everyone has always known, politics and Washington, investments and information, and money, belong to the makers.
Of course it is crap. But crap is the fantasy which powers the very essence of the Wall Street investment community, make up a story, securitize it, only take what you can steal, and then sell useless insurance against a raid on fantasy values where there is no market, just their mark. Lifting bales of stimulus money has not been easy when also worrying about public image, and a system, now gamed forever by forceful Fed and Treasury policies which have come to prove what everyone has always known, politics and Washington, investments and information, and money, belong to the makers.
Monday, August 31, 2009
Zero Rate Stock Moves
Markets continue to show signs of being extremely overdone on the upside with technicals currently deteriorating faster than the DJIA may be able to retrace to 10,000. The Trail of Rally post of May 11, which predicted the summer rally, complemented the bottom call made in the Giant Bear Miscalculation post on Feb 20th this year. Those market conditions are a part a structure of price configurations which move like tectonic plates under trends of various dimensions and also beneath the business news noise so inaccurately labeling various items as responsible for daily price action.
Current rally conditions have perplexed the Bears with relentless late session rallies coming after solid interday breaks. As in most moves, these rallies are a result of a combination of factors but primarily a bearish complacency and a reliance on already well known macro information. The Bears had a feast but those days are gone and the Bulls have the tactical advantage of surprise now.
The most notable stock market rally from a zero interest rate base was in Japan in the nineties. Recently a Bloomberg article published a chart showing the similar contours between current market patterns and Japan's rally. Of course the comparison ask you to believe the similarities will continue and extrapolates a 40% gain in the SP500 during the remaining balance of this year. The downside however is that if you simply follow the chart, one sees an ultimate death dive in prices and a bearish rolling line into the present.
Stock rallies in zero rate environments which measure the underlying economic conditions based on the performance of stocks is a big mistake. Stocks will almost always be the initial primary beneficiary of an investment landscape which leaves few alternatives. The ultimate roll over of rallies such as these is due to the fact that all the things that did not work before the big break, still do not work very well at the recovery break. That would include autos, retail, construction, and banking.
Current rally conditions have perplexed the Bears with relentless late session rallies coming after solid interday breaks. As in most moves, these rallies are a result of a combination of factors but primarily a bearish complacency and a reliance on already well known macro information. The Bears had a feast but those days are gone and the Bulls have the tactical advantage of surprise now.
The most notable stock market rally from a zero interest rate base was in Japan in the nineties. Recently a Bloomberg article published a chart showing the similar contours between current market patterns and Japan's rally. Of course the comparison ask you to believe the similarities will continue and extrapolates a 40% gain in the SP500 during the remaining balance of this year. The downside however is that if you simply follow the chart, one sees an ultimate death dive in prices and a bearish rolling line into the present.
Stock rallies in zero rate environments which measure the underlying economic conditions based on the performance of stocks is a big mistake. Stocks will almost always be the initial primary beneficiary of an investment landscape which leaves few alternatives. The ultimate roll over of rallies such as these is due to the fact that all the things that did not work before the big break, still do not work very well at the recovery break. That would include autos, retail, construction, and banking.
Saturday, August 22, 2009
Coming Week Will Be The Battle For Bull/Bear Title
Markets reversed the early break on the week and rallied to make new highs for the move since the March lows. Bears have had to take their lumps as market technicals have pushed into over bought configurations not seen since October of 2007. But there is no place to hide if you are short as anyone knows who bullishly road the break and eventually the oversold idiocy of late winter 2009. Now the idiots are long and some are arriving late to this rally. What might have been a healthy test of correction lows for next week, had this weeks correction continued, now looks as if it will be the an area where the bulls attain price levels which will create the Bull/Bear lines for all price action remaining this year.
Wednesday, August 19, 2009
Market Bruises
Problems creeping into the Spring/Summer rally as various supporting elements begin to bruise. China's stock market is cracking which brings problems for so many equity growth supporters who have had little proof from the rest of the world's economic data that anything but a slow choppy march was ahead for most investments. Yes, when the market doll was run over and the stuffing was left to be collected and reassembled by cable business news anchors and guests, a valiant effort to manufacture bull dolls began because they make better companions for the thoughtless.
Markets will plow into some correction depths as next week's lows will become the dividing line for September/October price action anxiety.
Markets will plow into some correction depths as next week's lows will become the dividing line for September/October price action anxiety.
Thursday, August 13, 2009
Real Opportunity Search Begins
Money funds yielding nothing is being written about these days as there seems to be some surprise to the notion of stubborn low yields despite the rise in stocks since March. It should not be a shock that most of the profits from yields are being spent on expenses by the fund managers since little profit margin is left after the returns in Treasuries, the generating instrument of the money fund investments. Further, despite the draw down in money funds over the last couple months, there is still about 500 billion more in balances than there was in 2008.
Low yields and a 'creeping out of the storm cellar' have contributed to the rally in stocks as re-investing occurs. This along with substantial foreign purchases has put a bid in the markets. However, there is clearly a reluctance to chase perceived price discount value opportunities aggressively, leaving continued large balances in money funds. Ultimately this will limit upside momentum but does not eliminate the creeping bid side necessarily.
Though money funds are just a part of the investment environment, they do reveal the problems for the bulls. How does the market move substantially higher in a dramatically altered world on attitudes of acceptable risk? One where a primary sector for leverage, real estate, has been substantially reduced and may not return as a contributor for years. What is the substitute? Job growth? No. New risk opportunities based on cheap stocks? Not likely once the major indexes claim a 50% retracement from the March 09 / Oct O7 range,(which the Nasdaq100 futures completed today). No, the low fruit has been picked since March and now the real search for opportunity will begin.
Low yields and a 'creeping out of the storm cellar' have contributed to the rally in stocks as re-investing occurs. This along with substantial foreign purchases has put a bid in the markets. However, there is clearly a reluctance to chase perceived price discount value opportunities aggressively, leaving continued large balances in money funds. Ultimately this will limit upside momentum but does not eliminate the creeping bid side necessarily.
Though money funds are just a part of the investment environment, they do reveal the problems for the bulls. How does the market move substantially higher in a dramatically altered world on attitudes of acceptable risk? One where a primary sector for leverage, real estate, has been substantially reduced and may not return as a contributor for years. What is the substitute? Job growth? No. New risk opportunities based on cheap stocks? Not likely once the major indexes claim a 50% retracement from the March 09 / Oct O7 range,(which the Nasdaq100 futures completed today). No, the low fruit has been picked since March and now the real search for opportunity will begin.
Tuesday, August 4, 2009
Few Reliable Measures
This one hundred plus day rally for the index markets has seen the DJIA rally over 43%, with the SP500 and NQ100 exceeding over 50% gains. The particular migration back to 10,000 DJIA will continue with enough downside bend and turn activity scary enough to make many stop looking up. But this current rally is one of investors and traders returning to purchases based in part on perceptions of bargain values, short term opportunity, and finally, top quality risk investments. The first two seem to fit the stock indexes, while the latter is a bit tough on the return side since few AAA short term investments exist that do not return near zero.
Finding bargain values in stocks is a game filled with few real reliable measures. Those actually getting paid to analyze stocks are constantly fooled by gamed data, while the upside bias of business news coverage remains a function for the simplest of minds. Buying large percentage breaks in price does work, but it usually remains a short term play. The determination of real value will have to be played out in the balance of this trading year as to whether low prices are really value opportunities. I suspect many will be disappointed and will discover that value is the price you sell at below your purchase price.
Finding bargain values in stocks is a game filled with few real reliable measures. Those actually getting paid to analyze stocks are constantly fooled by gamed data, while the upside bias of business news coverage remains a function for the simplest of minds. Buying large percentage breaks in price does work, but it usually remains a short term play. The determination of real value will have to be played out in the balance of this trading year as to whether low prices are really value opportunities. I suspect many will be disappointed and will discover that value is the price you sell at below your purchase price.
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