Submitted by Lance Roberts of STA Wealth Management,
As we wrap up a holiday shortened trading week, there are several things to ponder this weekend. Will the breakout of the S&P 500 of the trading range it has been stuck in since February hold? Is the negative print of GDP in the first quarter simply a weather related anomaly, or something else? Is the decline in interest rates telling us something important? Are the currently high levels of complacency and bullishness in the markets a warning sign? Or, is this just a continuation of the bull market cycle that started over five years ago with plenty of room left to run.
This week I thought I would have a little fun by including some of Yogi Berra's more famous quotes to the selected reading list.
"I always thought that record would stand until it was broken?" - Yogi Berra
Earlier this week, I discussed the break out of the S&P 500 and reviewed the "Three Stages Of A Bull Market." The more interesting chart was the similarity between now and 2011. While no two market periods ever repeat exactly, the important note is that in 2011, the markets had also broken out to new high as the Federal Reserve was ending QE 2. Today, as the markets again ratchet to new highs, the Fed is also exiting QE 3. It is a point worth noting.
1) Is The Stock Market Behaving Like 2007? by John Kimelman via Barron's
"The parallels between May 2007 and May 2014 are unmistakable, with broad market strength masking underlying weakness," according to the post. "That is not to say what happens next will play out in the same fashion this time around as it most certainly will not. But at the same time, to completely ignore what the market is telling us here would be foolish as well."
"You've got to be very careful if you don't know where you are going because you might not get there." - Yogi Berra
2) The US Is Trapped In The Perils Of Linear Thinking by Stephen Roach via Zero Hedge
"Quantitative easing, or QE (the Federal Reserve’s program of monthly purchases of long-term assets), began as a noble endeavor – well timed and well articulated as the Fed’s desperate antidote to a wrenching crisis. Counterfactuals are always tricky, but it is hard to argue that the liquidity injections of late 2008 and early 2009 did not play an important role in saving the world from something far worse than the Great Recession.
The Fed’s mistake was to extrapolate – that is, to believe that shock therapy could not only save the patient but also foster sustained recovery. Two further rounds of QE expanded the Fed’s balance sheet by another $2.1 trillion between late 2009 and today, but yielded little in terms of jump-starting the real economy."
"In theory there is no difference between practice and theory. In practice there is." - Yogi Berra
3) Forced To Take Risk? by Carl Richards via NYT
"More risk, even if you’re 'forced' into it, does not guarantee being 'richly compensated.' And treating REITs and utilities like bonds is nuts because — reality check — they’re NOT bonds. Both of these statements are excellent examples of really bad ideas being presented as advice, but because they appear in a respected publication, investors may be tempted to assume that it’s a prudent strategy.
Our job as investors is to ask at least one more question if what we’re hearing sounds either too good to be true or contradicts what we already know to be true."
"I never blame myself when I'm not hitting. I just blame the bat and if it keeps up, I change bats. After all, if I know it isn't my fault that I'm not hitting, how can I get mad at myself?" - Yogi Berra
4) Stephanie Pomboy Interview On Why The Fed Has To Reverse Course by Lawrence Strauss via Barrons
"The No. 1 thing is that investors generally have underestimated the impact that QE [quantitative easing] has had on the economy and the degree to which it has supported growth. As a consequence, they have underestimated the cost the tapering [of monthly Treasury bond purchases by the Fed] would have, and that is starting to come into focus. People will realize that the economy really has not achieved any self-sustaining momentum and that it requires continued stimulus. I liken it to a car on a flat road that has no momentum. When you take your foot off the gas, the car just stops moving. That's essentially what the Fed is doing."
"Baseball Is 90% mental, the other half is physical." - Yogi Berra
5) It's Really Quite Out There by Joe Calhoun via Alhambra Partners
"Normally I would take this as evidence of complacency, something I generally don’t like in my markets since it is so often followed by sheer terror. But I think this is something different than previous periods of quiet. The recent nearly complete lack of volatility is, I think, a product of a very confusing environment. It isn’t that investors are complacent about risk but rather more that they are paralyzed into inaction as they wait on more information about the economy and other factors. We can see this in the AAII weekly sentiment poll where the largest contingent resides in the Neutral camp at 43.2% of the respondents. That is 13% higher than the long term average while the bull and bear camps are both less than their long term averages. We also see it in the volume statistics for a range of assets from stocks to forex to commodities."
"If you come to a fork in the road, take it." - Yogi Berra