Will investing based on fundamentals eventually find favor once again with investors? The problem is that market participants no longer view the financial markets as a place to invest savings over the "long term" to ensure future purchasing power parity. Today, they view the markets as a place to "create" wealth to offset the lack of savings. This mentality has changed the market dynamic from investing to gambling. As Seth Klarman warned, "There is a growing gap between the financial markets and the real economy. Not surprisingly, lessons learned in 2008 were only learned temporarily. These are the inevitable cycles of greed and fear, of peaks and troughs." Simply put, fundamentals will matter, but only after the fact.
Another conspiracy "theory" becomes conspiracy "fact" as The FT reports "a cluster of central banking investors has become major players on world equity markets." The report, to be published this week by the Official Monetary and Financial Institutions Forum (OMFIF), confirms $29.1tn in market investments, held by 400 public sector institutions in 162 countries, which "could potentially contribute to overheated asset prices." China’s State Administration of Foreign Exchange has become “the world’s largest public sector holder of equities”, according to officials, and we suspect the Fed is close behind (courtesy of more levered positions at Citadel), as the world's banks try to diversify themselves and "counters the monopoly power of the dollar." Which leaves us wondering where are the central bank 13Fs?
The big question remains: will the current signal be a sign of complacency, which suggests that lower prices are ahead or will the current signal be a failed signal leading to significant market gains?
There is no edge.
I am sure those who were buying the "Kool-aid" at the market highs feel that way, but the numbers tell a different story.
Hot Air Hisses Out Of Housing Bubble 2.0: Even Two Middle-Class Incomes Aren’t Enough Anymore To Buy A Median HomeSubmitted by testosteronepit on 04/07/2014 12:35 -0400
“There was a moment when it made sense,” said Blackstone Group, largest home buyer in the US. But not anymore.
The "smart money" indicator is at its most extreme degree of selling since November, 2010.
According to Goldman, the median company’s EV/sales ratio is now the highest in 35 years, surpassing even the dot com bubble.
The technicals break with the news!
This is a headwind we shouldn't ignore.
Crisis was averted. Or was it just put off for another day?
In essence, you need to be selling strength.
The "Mixed Signals" from 2 weeks ago, which morphed into last week's clues, must mean something this week as the markets had their worse day in 7 months on Friday.
At these levels of bullish sentiment, fewer bulls isn't a contrarian signal but a sign that there are fewer investors willing to push the market higher.
Folks, I wish I had the answers for you this week.