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5 Things To Ponder: Variegated Contemplations

Tyler Durden's picture




 

Submitted by Lance Roberts of STA Wealth Management,

"Twas the week before Christmas, when all through markets

Not a trader was stirring, because they already left for the Hamptons.

Which left  the "inmates running the asylum" with very little care

As everyone hoped a 'Santa Claus Rally' would soon be there."

Yes, it is that magical week leading up to Christmas and the subsequent low volume push into the new year. For individuals, it is "magic time" as hopes are high that "Santa Claus" will come to WallStreet.

Of course, as mutual funds window dress portfolios for the end of year reporting, it tends to elevate the most popular stocks in the markets. However, investors should also be wary of the rotation of the calendar as those same managers then sell positions for tax purposes in the New Year.

This weekend's reading list is a smattering of articles that cover a wide range of topics from investing to oil. As always, I try to provide opposing points of view to give readers a complete picture of the topic. As a portfolio manager, it is important to remember that our fundamental beliefs can lead us into making poor investment decisions. Therefore, it is crucial for long-term investment success that we eliminate the emotional biases that affect our decision-making processes. 

With that said, here are the things I will be reading this weekend.


1) Be A Good Loser by Mebane Faber via Meb Faber Research

"One of the biggest challenges of investing is long periods of underperformance, or outright negative performance and losses. Cliff Asness has a fun piece out on his blog where he talks about 5 year periods in stocks, bonds, and commodities and basically how anything can happen.

 

So if you’re going to be an investor, get used to being a loser!"

Faber-Drawdown-121814

Read Also: What To Expect When Your Expecting by Michael Batnick via The Irrelevant Investor

 

2) An Unconventional Way Of Looking At Valuations by GaveKal Research

"An unconventional way of looking at valuations is to place companies into different "buckets" based on their absolutely valuation level. This gives you a simple way of understanding where the majority of stocks lie in terms of valuations levels

In the charts below, we take a look at price to earnings, price to book, price to cash flow and price to sales ratios. We want to see whether or not a majority of companies lie above or below certain absolute levels."

GaveKal-Valuation-12191414

Read Also: Lessons From WWI About "Markets" Predictive Ability by Fabius Maximus

 

3) Oil Price Scenarios For 2015-2016 by Euan Meams via oilprice.com

"The spare capacity data suggests that demand / supply imbalance may last three years, requiring 18 months to work through to the mid-cycle point where over-supply turns to under-supply. It is by no means certain that the market will respond to the same time dynamic when we are now dependent upon natural production capacity wastage to occur as opposed to OPEC simply closing the spigot."

Oil-price-scenariors-121814

Read Also: The Fracturing Energy Bubble Is The New Housing Crash by David Stockman via Contra Corner Blog

Read Also: The Lessons Of Oil By Howard Marks via ZeroHedge

 

4) Advocating Ignorance by Signmund Holmes

"Ignoring valuation – ignoring risk – is a recipe for disappointment and is the thing that is most likely to lead investors to abandon a passive plan as Swedroe fears. If you have a risk tolerance that allows for a 10% drawdown and you invest the same today as you would when valuations were lower – say in 2009 – you will at some point blow your risk budget. You’ll get a drawdown that exceeds your pain threshold and you’ll throw in the towel right when you shouldn’t. If your risk tolerance is fixed, at least in the short term, shouldn’t your portfolio asset allocation change as risk rises and falls? Is Swedroe saying that stock market risk today, after a huge rise in market multiples, is the same as it was in March of 2009 and you should just ignore that and stick to the same portfolio?"

Read Also: The Next Crisis Will Be Different Than The Last by Pater Tenebrarum via Acting-Man.com

Read Also: Maybe Business Cycles Don't Exist by Noah Smith via Bloomberg

 

5) Will The Fed Be Patient Enough by Matt O'Brien via The Washington Post

"But why does it think it should be raising rates then anyway? Sure, unemployment is approaching normal levels, but there are still a lot of people who want full-time jobs who can only find part-time ones, or who have given up looking altogether until things look better. Wages are quiescent, and prices are too. There's just no pressure to raise rates now. And as Sweden shows, raising them too soon only leads back down to zero. That's because even 1 percent rates can be enough to kill a still-weak recovery, and send inflation down below zero—forcing rates back there too."

Read Also: Janet Yellen Consults Mr. Language Person by Sigmund Holmes (Humorous)

Read Also: The Coming Margin Call From Hell by Ambrose Evans-Pritchard via The Telegraph

 


CHART OF THE DAY:  The Annotated History Of The Dollar via ZeroHedge

Annotated-History-Dollar-121914


Bonus Read: 122 Things Everyone Should Know About Investing And The Economy by Morgan Housel via Motley Fool

"#103 Someone once asked Warren Buffett how to become a better investor. He pointed to a stack of annual reports. "Read 500 pages like this every day," he said. "That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.""


"It is no coincidence that the century of total war coincided with the century of central banking.” - Ron Paul

Have A Great Weekend

 

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Fri, 12/19/2014 - 17:52 | 5574154 disabledvet
disabledvet's picture

Only two things:  "what is the Fed doing" (rates have in fact been rising now for well over a year.  Time to flush the Taper!) and price to sales.

The cost of deploying a cloud computing system collapsed over a year ago...but that doesn't mean the profit margin did. If pricing power is maintained those are huge margins and...if sales are maintained..huge profits too.

 

Of course the thing about about bubbles is....

Fri, 12/19/2014 - 18:19 | 5574219 Yen Cross
Yen Cross's picture

  Disabled vet, you should seriously consider taking some finance classes at your local community college.

  You actually think imports to the United States are rising?

 

Who are the (2) largest exporters the United States imports from?

 Folks, please keep your powder dry, and enjoy the holidays. You don't want to miss the " main event".

 The party is just getting started <>

Fri, 12/19/2014 - 18:48 | 5574291 negative rates
negative rates's picture

And i'll supply the extra vasoline and guotine.

Fri, 12/19/2014 - 18:12 | 5574194 ebworthen
ebworthen's picture

+1 for the Ron Paul quote. 

General Smedley Butler, former US Marine Corps Commandant,1935:

"“I spent 33 years and four months in active military service as a member of our country’s most agile military force — the Marine Corps. I served in all commissioned ranks from second lieutenant to Major General. And during that period I spent more of my time being a high–class muscle man for Big Business, for Wall Street and for the bankers. In short, I was a racketeer, a gangster for capitalism.  During those years, I had, as the boys in the back room would say, a swell racket...

...I was rewarded with honors, medals and promotion. Looking back on it, I feel I might have given Al Capone a few hints. The best he could do was to operate his racket in three city districts. I operated on three continents.”

Fri, 12/19/2014 - 18:32 | 5574255 NotApplicable
NotApplicable's picture

Funny how I heard none of that talk about Smedley in boot camp.

Fri, 12/19/2014 - 18:50 | 5574299 negative rates
negative rates's picture

Well he slept above Gomer Pyle so he might have missed it.

Fri, 12/19/2014 - 18:34 | 5574235 Just Take It All
Just Take It All's picture

Give me a frickin' break with the "emotional biases" bullshit. If I short the market, and Janet Fucking Yellen gives it to me real hard in the ass, does that mean I have an "emotional bias" or does it mean I am being psychologically raped?

Fri, 12/19/2014 - 18:50 | 5574303 negative rates
negative rates's picture

No, ur just all round fucked.

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