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5 Things To Ponder: Mentally Conflicted
Submitted by Lance Roberts via STA Wealth Management,
I had a very interesting conversation with one my colleAgues yesterday about the markets and the economy. Essentially the discussion centered around the markets remaining near their all-time highs as economic data remained soft. Much like the "300" that defended Greece against the massive invading force of Persia, it is only a question of time before the battle is lost.
As I discussed on Monday in "When Will We Ever Learn..."
"The capacity for optimism is seemingly limitless, but the "sting" of failure is quite transient.
While it is in those failures that valuable lessons are taught, studies have shown that humans tend to suppress or substitute new memories over time.
George Santayana once said:
"Those who cannot remember the past are condemned to repeat it."
The phrasing itself certainly is catchy, and is often used in the financial media due to its underlying truth. If history is a guide to the results of previous actions, and those results were painful, then history should guide not only policy making (public and private) but our own behaviors as well.
It's hard to disagree with. Over the history of the financial markets (all the way back to the 1600's) speculative investing has repeatedly led to booms and busts.
Importantly, each of these "bubbles" involved an excessive level of speculation around some specific asset.
Of course, it is all rather obvious in hindsight. Valuations were high, the Fed was hiking interest rates and the love affair with stocks and leverage had reached historically high levels.
Today, there are many signs that the markets are once again approaching a "danger zone." Margin debt is once again at historically high levels; valuations are the second highest in history and the "love affair" with equities has pushed stocks to record highs. But these areas are really just a reflection of the excesses that are building elsewhere in the financial system."
The disconnect between economic underpinnings, market internals and "bullish" investor optimism leaves many investors/advisors "mentally conflicted." If they "sell" too soon, they might miss a further advance in the market. But if they wait too long, well, they have lived through that scenario previously.
This week's reading list is a smattering of conflicting views about the markets and the economy. As always, it is extremely valuable to analyze both sides of every argument. This reduces confirmation bias and leads to a better assessment of potential flaws that may exist in your investment thesis.
1) The US Stock Market And A Major Recessionary Warning? by Pater Tenebrarum via Acting Man Blog
"The deterioration in market internals is e.g. evident in new high/new low ratios that are inconsistent with a market making new highs, and a growing divergence between prices and advance/decline statistics. Also, an ever smaller percentage of stocks remains above important moving averages. Below is a chart depicting several of the most widely followed market internals (high/low percent, advance/decline line, S&P 500 stocks above 200 day and 50 day EMA).
What this essentially tells us, is that capitalization-weighted indexes are held up by an ever smaller number of big cap stocks. A the time of writing, a strong short term rebound in the stock market is underway. However, the underlying problems with trend uniformity and internals depicted below remain in place."
Read Also: Several Reasons To Remain Bullish On Stocks by Chris Ciovacco via Ciovacco Capital
2) "Extreme Fear" Is Back For The Stock Market by Heather Long via CNN Money
"What's going on? Investors are spooked by the same factors that have been around for months: China's slowdown, Greece's possible exit from the euro, and the Federal Reserve's first interest rate hike expected in September.
None of this is new, but it's getting real. On Monday, China's Shanghai Composite index fell a whopping 8.5% -- its worst single day decline since February 2007. While America investors don't have a lot of exposure to China's stock market, they do have exposure to China's economy since so many U.S. businesses are now operating there.
China's economic slowdown is the bigger concern. The stock market plunge is seen as more of a warning sign to the rest of the world."
Read Also: The Secret For Beating The Market by Nouriel Roubini via Project Syndicate
3) The S&P 500 And Stock Buybacks by Ironman via Political Calculations
"How different would the value of the S&P 500 be if not for the amount of stock buybacks that have taken place in the U.S. stock market since the end of 2008?
What we see from our highly simplified, back-of-the-envelope math is that through the end of the first quarter of 2015, the most recent for which S&P has reported data at this writing, the value of the S&P 500 would be about 324 points, or nearly 16%, lower if not for the progressive impact of share buybacks over the last seven years."
Read Also: Putting The "Buy Back" Craze Into Context by Eric Bush via GaveKal Capital
4) When Will The Next Recession Start? by Ed Yardeni via Dr. Ed's Blog
"I doubt that the business cycle is dead, though I suspect that inflation may be dead. As inflation remains subdued and central banks continue to provide ultra-easy monetary policies, the next recession may very well be a long ways off. If inflation makes a sudden comeback, a possibility I can't dismiss, then all bets are off. A meltdown in China's financial markets and economy might also trigger a global recession, which is why I am concerned about the renewed weakness in commodity prices, as I discussed last week."
Read Also: Recession Ahead? Gross Output and B2B Data by Dr. Mark Skousen via MSkousen.com
Read Also: Leaked Fed Staff Forecast Reflects Gloomier Outlook by Binyamin Appelbaum via New York Times
5) Investors Should Raise Cash by Michael Kahn via Barron's
"But what I find more interesting is that the last time the market suffered a significant correction, aside from last year's Ebola-inspired mini-panic, the industrials broke down first. That was in the summer of 2011 and the industrial sector broke down about a week before the broad market did (see Getting Technical, "Industrial Stocks Are Shutting Down," August 1, 2011). Although we cannot make a rule out of so few observations, it probably is a good idea to keep cash levels higher than normal."
Read Also: Its A Bounce For This Key Market Gauge, Or Else by Dana Lyons via Tumblr
Other Interesting Reads
Sometimes, Investors Win By Not Losing by Joe Calhoun via Alhambra Partners
Am I Too Bearish, Or Are you Too Bullish by Jesse Felder via The Felder Report
Jeremy Grantham's 10 Issues To Watch by Jeremy Grantham via ZeroHedge
6 Great Investors Explain What Makes Stocks Rise by Lauren Rublin via Barron's
"I have always found it valuable to study my mistakes" - Edwin Lefevre
Have a great weekend.
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So, really only one thing to ponder.
The central bankers will stop printing money before it all blows up.
vs.
The central bankers will not stop printing money before it all blows up.
They'll print until the button breaks!
No need to print. I believe stocks have reached a permanently high plateau.
"Stocks will always return 10% a year.. just like housing!" - every Joe Brosef everywhere. Meanwhile, commodities are on the cusp of being free -- thank you Bromidal Benjamin and Juicy Janet for continuing to do gods work....
Sorry but this is the same shit, different day
Yep, SSDD forever or until the system breaks...whichever comes first......
Most of this bullshit is political.
No one wants to be blammed for the biggest collapse in history.
So, punt.
generic pharma companies - anything for people who lack an attention span or the willpower to eat somewhat sensibly and exercise a little...
might not be a bad place to look for stuff that is less-overvalued than the indices
They know it is a fraud...we know it is a fraud...they just want to steal as much before the fraud is exposed. Same as last time around...my bet is that another major criminal organization will be the sacrifical lamb like Lehman....Goldman will be rescued at all costs No one wants the hard work of actual companies...just micro-second investing, printed Trillions and some scarificied workers....so they can put a new wing on their Hampton Mansion. Till we start seeing bankers doing hard time along with their political enablers....it won't change. No one running for President is a Trust Busting Teddy Roosvelt.
it seems like investors don't need estimated value 'cause the actual never felt under the estimated within the pass seven years, yes yes everything is inflated but for invesors, who care
"Those who cannot remember the past are condemned to repeat it."
A fitting motto for the Eon or at least as far back as I can remember financially since the crash of 1973.
REMEMBER THE BAD
We'd all better remember the good times because on the current path it is going to get worse than bad. Most probably thought Lehman was Too Big To Fail (TBTF) and many still haven't learned from the past as recently as 7 years ago. This upcoming crash will make the Great Depression look like a picnic in the park on a sunny day with a full basket of food. And with the just-in-time globally integrated supply chains of many companies and countries this is going to get ugly and quickly. When the financial pieces start to get unmanageable and unfold it will spiral downhill from there. And the future planned global conflict to distract the wholesale fraud and subsequent theft of everything will be carried out and destroy all revenues, profitability and shareholder value of what's left of any corporations. And this is just a corporate perspective.
REMEMBER THE GOOD
So in remembrance of good times the other day I decided to recreate an old brunch combo that brings back fond memories. The best Reuben with extra sauerkraut that I can no longer get at my most frequented NY deli unless I'm traveling. And for desert a wonderful ice cream flavor Chocolate Chocolate Mint Chip. Unfortunately the company that used to make this ice cream discontinued that flavor quite a long time ago. So I have to make my own custom version now.
FUTURE BAD TIMES
That company now operates globally in 50 countries. And just like some of the other cursory sector analyses I've done before (linked below) the current financial course will have the same results for everyone across the board. It may just take slightly longer to reach one than another. One country to another, one region to another, one multinational corporation to another etc. And each corporation would see similar subsequent results i.e.:
- Loss of external sources of funding for growth.
- Collapse of integrated or interdependent supply chains
- Market stagnation, contraction and eventual collapse.
- Loss of revenue, shareholder value and employment.
- A global derivatives or bond market collapse could easily result in a loss of everything.
- And the finalization of the current financial course will lead to increasingly aggressive moves which will result in various types of conflict. All bad for business.
PATH TO A BETTER FUTURE
It is not too late to stop the current course and put everyone on the right path. Greece and the market moves in China are early indicators of the financial conflict that can result within regions. And internal violence or greater can become a result. We've seen some of this already in various places. This is a good small example of how this current path eventually lead to increasingly larger financial and violent conflict as the current path progresses.
This can be stopped now with the right dedicated resources and commitment applied to a Universal Solution that would be able to be applied to everyone. The path is already set to go towards a total collapse and global war. Almost all global multinational companies are NOT Too Big To Fail (TBTF) and will not be bailed out. Even if there are any TBTF left they will be a shell of what they used to be with no financial economy left to fund or drive demand. Do each of you want to gamble on your corporations ability to survive?
Multinational corporations have the biggest vested interest in seeing a smooth, timely, peaceful global financial solution and transition take place. They are preserving the existence of the corporation, the core values like quality and the vision of their founders, the perception and loyalty of their global customers, the jobs of their employees around the world, the retention of value for their shareholders and much more. Only a fully dedicated commitment will put the current financial path in check and then mate. Hedging commitment or resources and hoping that half-price sales or a fall back plan will save you in the end will not work. At this late stage of the financial situation those companies that want to survive and hope to thrive in the future must go all-in.
REFERENCE MATERIAL
"GLOBAL ANALYSIS"
http://www.zerohedge.com/news/2015-07-23/caterpillar-sales-plummet-outlo...
&
http://www.zerohedge.com/news/2015-07-23/strategic-petroleum-reserve-no-...
"PAST"
http://www.zerohedge.com/news/2015-07-27/when-will-we-ever-learn#comment...
INCREASING FINANCIAL SIGNS OF THE CURRENT FUTURE
http://www.zerohedge.com/news/2015-06-29/greek-10y-bonds-collapse-yield-...
http://www.zerohedge.com/news/2015-06-29/puerto-rico-bonds-are-collapsing
http://www.zerohedge.com/news/2015-06-22/140-billion-bond-fund-goes-cash...
http://www.zerohedge.com/news/2015-06-28/collapsing-cds-market-will-lead...