JAN 15 17 SIT EC
y POL
ZERO HEDGE, BLOOMBERG & WS-J
ECONOMICS
ECONOMIC OBSTACLES FOR TRUMP to OVERCOME in 16 graphics
Best view from Investors’ stand point: How they see the
future?
#PortfolioHedgesMatter
EXTREMES BECOME THE NORM
There have been a litany of articles written recently
discussing how the stock market is set for a
continued bull rally. While Trump was initially expected to be
extremely bad for the market, post-election he somehow
became extremely good for it. The are
some primary points in common
among each of these articles which are:
1) interest
rates are low, 2) corporate profitability is
improving, 3) oil prices are rising, and; 4) Trump’s fiscal policies
will supplant the Fed’s monetary policies.
While the promise of a continued bull market is very
enticing it is important to remember, as investors, that we have only one job: “Buy Low/Sell High.” It is a simple rule that is, more often than not,
forgotten as “greed” replaces “logic.” It is also the simple emotion of greed which fosters exuberance
and extremes which ultimately reverts into devastating losses.
Therefore, if your portfolio, and ultimately your retirement, is dependent upon the
thesis of a continued bull market you should at least
consider the following charts which are a collection of current “extremes”
in the market.
1-Extreme Valuations
It is often stated that valuations are still cheap. However
.. current valuations only appear cheap when compared to the peak in 2000. “I have noted the peak valuations in periods that have
exceeded that level.” See charts 1 and 2.
http://www.zerohedge.com/news/2017-01-15/danger-lurks-extremes-become-norm
With valuations at levels that have historically been
coincident with the end, rather than the beginning, of bull markets, the
expectation of future returns should be adjusted lower. See chart 3: High Valuation lead to Lower Future Returns The function of math is pretty simple – the more you pay, the less you get.
2-Extreme Prices
Much like a “rubber band,” prices can only be stretched so far before having to
be relaxed to provide the ability to be stretched again.
The chart 4 shows the long-term trend in prices has
compared to its underlying growth trend. The vertical dashed lines show the points
where extreme overbought, extended conditions combined with extreme deviations
in prices led to a mean-reverting event.
This is shown a bit
clearer in chart 5 which compares the deviation of the S&P 500 from the
long-term growth trend. Currently, while only
slightly below the peak of the 2000 “dot.com” bubble, the deviation is at
levels that have ALWAYS coincided with a negative mean reverting event or very poor,
and highly volatile, forward returns.
3-Extreme Allocations
Another argument I hear made consistently is that retail
investors are only just now beginning to jump into the market. The chart 6, 7 n
8 below shows the percentage of stocks,
bonds and cash owned by individual investors according to the American
Association of Individual Investor’s survey. As you
can see, equity ownership and near record low levels of cash suggest that the
individual investor is already likely “all in.”
4-Extreme Leverage
Of course, with investors fully committed to stocks it is not
surprising to see margin debt at record levels as well as investors leverage up
to chase returns. See chart 9: Margin debt and Net Credit Balance
When we look at the levels of Margin Debt/GDP ratio as
compared to the S&P 500, we find a high correlation between peak levels of
debt and subsequent market returns. Not surprisingly, extreme levels have been more indicative of
“ends” rather than “beginnings.” See chart 10
5-Extreme Positioning
As
we detailed yesterday, according to DB's calculations, the net short Treasury position is now a four
sigma event, having grown to nearly four standard deviations away from
mean, even after adjusting for open interest. See chart
11: the trend is down
VIX futures are near record shorts. See chart 12: trend down
6-Extreme Sentiment
Bob
Farrell’s rule #9 states that when everyone
agrees; something else is bound to happen. The next two charts show the level of “bullishness” of both
individual investors (AAII Survey) and professional money managers
(MarketVane, NAAIM & INVI Surveys). Surprisingly, investors are currently more exuberant than
just about at any other time on record. Chart
13 Bullish sentiment Composite Index shows a trend up
Even if we smooth the index with a 4-week average we get a better
view of the current level of exuberance. Importantly, such levels
of exuberance have been historically, once again, associated
with short to intermediate-term, or worse, corrections. See chart
14
Conclusion
When extremes become the norm, and are readily accepted as such, it has historically been associated with market bubbles.
- 1929 – Stock reach a permanently high plateau
- 2000 – This time is different
- 2007 – It’s a Goldilocks Economy
While I am not
suggesting the markets are about to crash tomorrow, I am suggesting that future returns are likely to be much
lower than currently estimated by the majority of the financial media.
“But
Lance, since you are all ‘bearish and $#(%,’ you are all in cash and missed out
on the markets advance.”
That would be incorrect.
As a money manager, I am currently long the stock market. I
must be, or I potentially suffer career risk. However, my job as a portfolio
manager is not only to make money for my clients, but also to preserve their
gains, and investment capital, as much as possible. Understanding the bullish arguments is surely important, but
the risk to investors is not a continued rise but rather the eventual reversion
that will occur.
Unfortunately, since most individuals only
consider the “bull case,”
as it creates confirmation bias for
their “greed” emotion, they never see the “train coming.”
Currently, with everyone on the “same side of the
trade,” any exogenous event which triggers a
movement in the opposite direction tends to result in a stampede. Hopefully,
these charts will give you some food for thought.
Remember, every
professional poker player knows how to spot a “pigeon at the table.”
Make sure it isn’t you.
….
ADDITIONS
1-This Is Interesting Problem with forecasts
I want to repeat this little blurb from Tuesday, only
because it ties into last weekend’s newsletter as well.
“In ‘The Problem With Forecasts,‘ I noted the Dow is
currently working on completing an advance of 5000 points over a 24-month span.
The last time such a compressed advance occurred was during the 1998-1999
period.
But what about the S&P 500?”
See chart 15: “Following the 1994 market lull, the
S&P 500 began its first serious bull market advance as a wave of investors
flooded into the market due to the introduction of online trading and the
official opening of the “Wall Street Casino.” From 1995 to its peak in March of 2000 the market advance (whole number
basis only) by 1000 points over that 60-month period.
Following the crash, investors reluctantly began to
return to the markets in mid-2003. As the Federal Reserve, and deregulation of
Wall Street advanced, so did investors speculation in the markets as a real
estate sub-prime lending took hold. Beginning in 2003, the market began a
60-month trek higher of 700-points before once again finding the limits of
“fantasy and reality.”
So, here we are once again. Over
the last 60-months the markets have advanced by 1100-points, and 1400-points
over the last 84 months, as Fed-induced monetary stimulus and suppression of
interest rates have once again led investors to believe “this time is
different.”
Throughout history, as shown in
the chart 16 below, prices
have ALWAYS, and I repeat ALWAYS, eventually found their limits. There has
never been a “permanently high plateau” that inoculated investors from
devastating consequences of misconceived and poorly managed investments.”
As I noted above, when “extremes become the norm” that is the point in
time where “danger lurks.”
…
2-TECHNICAL UPDATE
Here the author
introduce 3 more charts (total 19) to suggest that profit taking is still advisable until a new “buy signal”
is registered.
With Trump’s inauguration next week, and an immediate
flurry of action promised within the first 100-days, there is a significant degree of risk that an
action, combined with extremes of the market as discussed above, could send
market participants running for cover.
Some caution is
advised until there is better clarity on a risk/reward basis.
…
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The
absolute disconnect of asset prices from economic activity is and will continue
to be unlike anything we have seen. This is no more of a "free market" than shooting a
cow in a pasture is "hunting". "Invest" accordingly, but know full well
the ill gotten gains will one-day, someday, sooner than later, be entirely gone
and we'll all know what it felt like to be Bernie Madoff clients.
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The “bond shock” story bubbles away in the
background. And with the next 50-75bps rise in yields (due to perhaps
expectations of trade wars or Chinese repatriation, or even further gains in
inflation), the risk of a financial “event” is likely to jump. 2016 started with pessimism and ended with optimism;
2017 starts with optimism…
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"Stocks have surged by 6% since the
election on the prospect of higher earnings under potential Trump policies, but
consensus bottom-up 2017 EPS forecasts for S&P 500 have been
unchanged" - Goldman Sachs
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"Returns will likely do worse under the
new administration than under the departing one, and where exceptions to this
may be. That statement is linked to a simple idea. Good market environments
often involve a shift from economic despair to optimism, and a shift in
psychology from ‘fear’ to ‘greed’. Both occurred over the last eight years,
producing returns well above the long-run average."
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The circus has many actors.. Taibbi is one of them (part of
the media).. is he helping the Clown
"The media
and politicians had spent so much time with each other that they lost touch
with regular people, and Trump capitalized on that... He made the media villains,
representative of this out of touch, ivory tower political culture... I think there's some fairness to it..."
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POLITICS
Deep state severely
divided:
"There is no basis for
Mr Trump to point fingers at the intelligence community for 'leaking'
information... Spontaneity is not something that protects
national security interests and so therefore when he speaks or when he reacts, just make sure he understands that the
implications and impact on the United States could be profound..." [ Is Brennan the next to be dismissed? ]
RELATED:
"Outgoing CIA Chief, John Brennan, blasts Pres-Elect Trump on
Russia threat.. Oh really! Was
this the leaker of Fake News?"
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Right : it’s a
delusion not to consider reality.. there is a multipolar system in
process
The
global hegemonic project that was supposed to be realized with a Clinton
presidency has been stopped. The inevitable military confrontation with Russia, Iran and
China has been averted and the future multipolar world order, historically
unstable, will in fact hold the promise of stability thanks to the actions of
opposing nations to the American superpower. United they will stabilize the world.
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Not evidence on very sensitive issue .. miss tape on
interviews.. paywall not reliable source
In two separate, and quite striking interviews
with Germany's Bild (paywall)
and London's Sunday Times (paywall), Donald Trump did what he failed to do in
his first US press conference, and covered an extensive amount of policy and
strategy, much of which however will likely please neither the pundits, nor the
markets.
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DINOS came back .. In Nov 8-16
the Nation cut its tale (Hillary) .. but oligopoly is still alive
The Media is not the DINO .. their owners are parts of
the oligarchical Dino
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Peace-medal is hanging himself up in the tree of history.. With a
note: “my fascism was stupid”
January
20th cannot come soon enough...
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Wrong.. Un perro huyendo con la cola
entre las piernas LADRA, pero no muerde
Russian foreign ministry spox Maria Zakharova slammed
"Obama and his illiterate foreign policy team" saying they "have
dealt a crushing blow to America's prestige and leadership" and described his administration as "a bunch of geopolitical losers, enraged and shortsighted." Zakharova
added that "Obama's
administration still has a few days left to destroy the world."
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Our
terrorism? Drones included.. Or other’s terrorism: our NATO allies &
ISIS
Mission
'accomplished' fear-mongers!! The most worrying issue in the US is
terrorism. Isn’t that a hoot? How many in the US have died from terrorism? How
much terrorism has the US sponsored in other nations, including its own drone
policy?
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by The_Real_Fly - Jan
15, 2017
The Trump-Putin meeting to be had in Iceland
was, apparently, a fiction.
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WORLD ISSUES and ME
The
Sea-based X-Band Radar has deployed out of Pearl Harbor after North Korean
dictator Kim Jong Un recently said his country was in the "final
stages" of test-launching an intercontinental ballistic missile. Media
sources reported that the SBX was being
sent about 2,000 miles northwest of Hawaii to watch for a possible North
Korean launch in coming months. The
Pentagon downplayed the floating radar's Monday departure.
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Russian foreign ministry spox Maria Zakharova
slammed "Obama and his illiterate foreign policy team" saying they
"have dealt a crushing blow to America's prestige and leadership" and
described his administration as "a
bunch of geopolitical losers, enraged and shortsighted." Zakharova
added that"Obama's administration
still has a few days left to destroy the world."
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GLOBAL RESEARCH
Udo Ulfkotte: “German Politicians are US Puppets”. German
Journalists are Urged to Bias their Writings in Favor of the US
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INFORMATION CLEARING HOUSE
Dubious report was
first commissioned by one of his Republican rivals and under the patronage of
someone in Hillary's camp
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Realistically
speaking, it looks like the Trump Presidency is already defeated by his own
appointees
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Trump's Enemies See an Opening
By Patrick Buchanan
The stakes in all of
this are becoming huge.
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The U.S. Gov lectures
other countries about “democracy” – but its own behavior falls far short of
democratic norms.
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To cover the issue of Russian espionage, the bully will try
to F*ck our country.
In zerohedge.com one
art suggest to call RU for help .. it could be good or bad .. will RU accept
it?
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SPUTNIK and RT SHOWS
Trump Likely to 'Use Sanctions as an Ace Up His Sleeve' in
Talks With Russia
https://sputniknews.com/politics/201701151049613146-us-trump-russia-sanctions/
https://sputniknews.com/politics/201701151049613146-us-trump-russia-sanctions/
Trump proposal is
flaw, contradictory and self-destructive. It has to be well defined with right
staff.
Versus:
Obama Will Soon See His Sanctions Policy Against Russia 'Torn
to Pieces'
https://sputniknews.com/politics/201701141049591225-obama-russia-sanctions/ we hope so.
https://sputniknews.com/politics/201701141049591225-obama-russia-sanctions/ we hope so.
Related 1:
Trump Will Have to 'Face Hawks in Congress' if Aims to Ease
Sanctions on Russia
https://sputniknews.com/politics/201701151049616954-trump-russia-sanctions-congress/
https://sputniknews.com/politics/201701151049616954-trump-russia-sanctions-congress/
Related 2:
Sanctions came from ultra-neocon
senator who –allegedly- bought & fraud elections
New US Sanctions Threats 'Attempt to Tie Trump's Hands' in
Relations With Russia
https://sputniknews.com/politics/201701101049438620-us-sanctions-russia-trump/
https://sputniknews.com/politics/201701101049438620-us-sanctions-russia-trump/
Related 3:
Only 'Fools Would Think' Having Good Ties With Russia Bad
Thing for US – Trump
https://sputniknews.com/politics/201701071049357790-trump-us-fools-russia/
https://sputniknews.com/politics/201701071049357790-trump-us-fools-russia/
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Russia Has Proof Some States, Foreign Companies 'Cooperate
With Terrorists'
https://sputniknews.com/russia/201701151049613942-russia-terrorists-states-patrushev/
https://sputniknews.com/russia/201701151049613942-russia-terrorists-states-patrushev/
We are talking
about purchases of oil and other raw material from terrorists,
as well as about paying them for obtaining permits
for production and transportation of goods in territories
under their control,"
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RT SHOWS
RT SHOWS
On contact Real
purpose of the intelligence report on Russian hacking with Abby Martin and Ben
Norton
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NOTICIAS IN SPANISH
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El orden
multipolar ya existe a pesar del imperio, y primará en futuro cercano.
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PRESS TV
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Maduro
‘committed to dialog’ with opposition
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37
killed in Turkish plane crash in Kyrgyztan
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‘Nearly 250 Syrians killed in Turkish assault in North Syria
Fumigate their tanks
and wall.. if inside Syrian border.
Turkey invasion of
Syria should not be tolerated
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CIA chief warns Trump to watch what he is saying
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