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5 Things To Ponder: Everybody's Got One

Tyler Durden's picture




 

Submitted by Lance Roberts via STA Wealth Management,

Over the last couple of months, I have regularly updated the ongoing consolidation process in the S&P 500. As I noted earlier this week, that consolidation was completed confirming the current bull trend in the market. To wit:

 "I stated previously that I expected the consolidation to resolve itself to the upside due to the underlying momentum in the markets. As I discussed in this past weekends newsletter (subscribe for free e-delivery), the resolution of that consolidation has now been achieved."

Chart-1-SP500-051515

"This [breakout] suggests that portfolios should remain FULLY ALLOCATED to equities for the time being as the tendency for the markets remains upwardly biased.

 

WARNING: This does NOT mean that this will be the case for the next three (3) months or the next year. It just means that the markets are still moving higher at the current time. However, investors should continue to monitor portfolios and manage risk going forward as things will change. As I have discussed previously, this does NOT mean that all market risk is now resolved,  or that investors should return to their complacent slumber. See "Bull Market Most Overbought/Leveraged In History."

 

I want to be quite clear about my comments. My job is to manage portfolios in a manner to participate in markets when they are rising and protect capital when they are not. Therefore, focusing on WHY markets are rising is of little importance because portfolios are already invested. My attention needs to be directed toward WHAT may cause markets to buckle unexpectedly. It is because of that analysis that I am often viewed as a "bear." In reality, I am agnostic, and because I am discussing the markets bullish breakout it does NOT mean that I have somehow changed my views.

 

IT IS WHAT IT IS. Denying the fact markets are rising, and failing to participate in the short term, is just as damaging as participating in a sharp market decline. In BOTH events, I am destroying client capital."

This weekend's reading list is a compilation of opinions on the current state of the makrkets and investing. And as the old saying goes - "opinions are like ***holes, everybody's got one."


1) Investors Need To Face The Possibility Of A "Great Reset" by Mark Hulbert via MarketWatch

"Watch out if corporate-profit margins narrow to their long-term average share of gross domestic product. If so, the S&P 500 Index would trade at less than 1,700 in five years, a decline of more than 20%.

I'm not necessarily forecasting such a dismal eventuality, though it's in the realm of possibility. I merely point it out to illustrate how dependent the stock market is on wide profit margins.

 

Few seem to be focusing on this vulnerability."

Read Also: A Stock Market Top Is Likely Near by Mark Hulbert via MarketWatch

 

2) Monetary Movements & Economic Mirage by Gavekal via Gavekal Capital Blog

"If the Fed has quietly decided to not only abandon any prospect of rate increases, but begin expanding its balance sheet again (in some stealth QE), stocks probably do propel out the year long relative strength consolidation with bonds. But, if not, then stock managers should be particularly attuned to monetary movements and the economic mirage in the US. Our simple model of the change in Fed asset compared to the total return of stocks vs. bonds, suggests the potential for significant bond outperformance if the Fed sticks to its plan of a 2015 lift-off."

Gavekal-FRB-SP500-052115

Read Also: Lower Earnings, Higher Stock Prices by Charlie Bilello via Pension Partners

 

3) Valuation & The Fed Model by Dr. Yardeni via Dr. Ed's Blog

"Valuation like beauty is in the eye of the beholder. With bond yields at historical lows, why shouldn't valuation multiples be at historical highs? At 2%, the 10-year Treasury bond yield has an effective forward P/E of 50, implying that stocks trading at a forward earnings yield of 5.9% and a multiple of 17 are grossly undervalued by as much as 62%. Of course, this "Fed Model," as I first named it back in July 1997, has been showing that stocks are undervalued since the Tech bubble burst. Furthermore, historically low interest rates may be a sign of secular stagnation, which isn't particularly bullish."

Yardeni-Fedmodel-Returns-052115

Read Also: Market Is Becalmed, No Reason To Rally Or Sell by AP via NYT

Read Also: The Fallacy Of The Fed Model by Lance Roberts via Streettalklive.com

 

4) Liquidity Starved Markets Fear The Worst by Simon Nixon via WSJ

"The optimistic view is that over time the market will innovate its way around the liquidity squeeze. Perhaps trading will migrate to the futures market and new fixed- income indices, allowing investors to gain exposure to price moves without having to own the underlying asset. Or perhaps new private pools of capital such as hedge funds will take the place of bank-based market makers in providing daily liquidity, although currently they show little appetite to do so. Or maybe longer-term investors such as insurers and pension funds will simply step in and hold less liquid assets to maturity, although this may require a change in the way these businesses are regulated.

 

An alternative view is that the liquidity squeeze is symptomatic of less benign changes in the financial landscape. In the 30 years since the Big Bang reforms in the City of London and the repeal of the Glass-Steagall Act in the U.S., capital markets have provided the motor for globalization, underpinned by the liquidity provided by banks. If banks stop making markets, the risk is that this process goes into reverse: As investors discover they can't sell their assets, they may stop buying too, pushing up the cost and reducing the supply of capital to the primary market."

Read Also:  This Chart Gets Us To 2425 On The S&P by Sam Ro via Business Insider

BofA-SecularBull

 

5) The Debate Of Tobin's Q Ratio

"If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you'd have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality."

 

Read: Nobel Winner's Math Is Showing Market Unhinged From Reality via Bloomberg

 

""But how useful is this ratio in reality? In my view, not very. And the problem, as I've explained before, is that it tries to apply a historical concept of mean reverting "value" in a world where the concept of value could be (and likely is) totally dynamic."

 

Read: Thoughts On Tobin's Q by Cullen Roche via Pragmatic Capitalism

 

""I'm usually very skeptical of these market models. For one reason, just because the market is over-valued doesn't mean that it won't become even more richly valued."

 

Read: Don't Fret About Tobin's Q by Eddy Elfenbein via Crossing Wall Street


MUST READS

Meb Faber's April Tweets via Meb Faber Research

A veritable smorgasbord of great data points worth your time to review. Great stuff Meb.

4 Factors Signaling Volatility Will Return With A Vengence by Nomi Prins via ZeroHedge

"No one could have predicted the sheer scope of global monetary policy bolstering the private banking and trading system. Yet, here we were - ensconced in the seventh year of capital markets being buoyed by coordinated government and central bank strategies. It's Keynesianism for Wall Street."

Is This The Top? by Ben Carlson via Wealth Of Common Sense

"Here are some better questions to be asking yourself."

These Are The 10 Things That You Will Do That Will Kill Your Returns by The Irrelevant Investor

No matter what investors SAY they will do, they will almost always succumb to the emotional investment mistakes caused by being human. Might as well understand them up front.


Dilbert-Does-Keynes-052115

Have a great weekend.

 

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Fri, 05/22/2015 - 16:41 | 6122810 SmilinJoeFizzion
SmilinJoeFizzion's picture

The market won't crash while Bing is in the White House

 

The PTB won't allow it

Fri, 05/22/2015 - 16:47 | 6122825 HedgeAccordingly
HedgeAccordingly's picture

In other news.... Deutsche Bank suspends Moscow traders for suspected money-laundering $

http://hedgeaccordingly.com/2015/05/deutsche-bank-suspends-moscow-traders-for-suspected-money-laundering-db.html

Fri, 05/22/2015 - 16:51 | 6122835 Toolshed
Toolshed's picture

Ummmmm.......no. The market won't crash because if it did, all the western central banks would be insolvent. They have been buying equities and are now well and truly fucked. As are we.

Fri, 05/22/2015 - 17:00 | 6122864 DogOfSinope
DogOfSinope's picture

Everything is shit. Except pissing.
And, even pissing is shit if one pisses against the wind.

Fri, 05/22/2015 - 16:48 | 6122827 WTFUD
WTFUD's picture

For 'markets ' substitute 'rackets'. Even the mafia are blushing at the blatant 'fix' and a number of incarcerated Dons are requesting that their racketeering convictions be reviewed.

Fri, 05/22/2015 - 16:51 | 6122834 Yen Cross
Yen Cross's picture

LMFAO You should have saved this article for April 1st Tyler.

Fri, 05/22/2015 - 16:51 | 6122836 buzzsaw99
buzzsaw99's picture

yeah, investors, lolz

Fri, 05/22/2015 - 16:57 | 6122856 pops
Fri, 05/22/2015 - 17:17 | 6122904 WTFUD
WTFUD's picture

STA Wealth Management Bah!

STD Wealthless Management :- see Payday WONGA loans * 1255% APR. subject to availability, terms and conditions may apply.

Fri, 05/22/2015 - 18:28 | 6123096 gagasonnoni
gagasonnoni's picture

would you love to JOIN THE ILLUMINATI to get money,power and fame?

contact the officialapllication  email address: join666@usa.com and ask if you can be accepted.

Fri, 05/22/2015 - 19:40 | 6123220 conscious being
conscious being's picture

Re. The cartoon - The first of The Four Noble Truths. The second is the Why. The third there is a Way out. The fourth is How.

Fri, 05/22/2015 - 19:56 | 6123263 Miffed Microbio...
Miffed Microbiologist's picture

What you cite is the only thing that saved me from going completely insane. The fourth Truth, the Path is the way out. The middle vs the extreme where I was residing.

The path is a process to help you remove or move beyond the conditioned responses that obscure your true nature. In this sense the Path is ultimately about unlearning rather than learning - another paradox. We learn so we can unlearn and uncover. The Buddha called his teaching a Raft. To cross a turbulent river we may need to build a raft. When built, we single-mindedly and with great energy make our way across. Once across we don't need to cart the raft around with us. In other words don't cling to anything including the teachings. However, make sure you use them before you let them go. It's no use knowing everything about the raft and not getting on. The teachings are tools not dogma. The teachings are Upaya, which means skillful means or expedient method. It is fingers pointing at the moon - don't confuse the finger for the moon.

Tough for a monkey brained female as I am but over the years it has given me great peace in our turbulent time. The key is mindfulness.

Miffed

Fri, 05/22/2015 - 21:22 | 6123447 Youri Carma
Youri Carma's picture

Life is Hard and Then You Die https://www.youtube.com/watch?v=vee-b0kYinE

Fri, 05/22/2015 - 21:39 | 6123487 22winmag
22winmag's picture

I promise not to regret investing heavily in ammo, beans, booze, and 100-can cases of sardines.

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