The market probed the 1130 defensive line on the S&P 500, but it was only a reconnoiter.
Expect another test on post-expiration Monday ramp. Could be a great jump-on point for a nice retracement trade.
Friday, September 17, 2010
Tuesday, September 7, 2010
Holding Pattern
We've been in a fairly volatile holding pattern, waiting for instructions from the tower.
This fog of uncertainty is causing havoc with hairlines and blood pressure.
Which way will we break? When will we break? Will we break at all?
Inquiring minds want to know!
This fog of uncertainty is causing havoc with hairlines and blood pressure.
Which way will we break? When will we break? Will we break at all?
Inquiring minds want to know!
Friday, June 18, 2010
Capitalism and Democracy inherently flawed
The flaws within both capitalism and democracy relate to the breadth of the human self.
Just as it is self interest that serves as the impetus for a positive marketplace, so to it is selfishness that ends up distorting a marketplace.
Just as it is self interest that sets-up a system of governance that benefits the whole of society, so to it is selfishness that leads to a system that gives the majority what they want (rather than what they need).
Just as it is self interest that serves as the impetus for a positive marketplace, so to it is selfishness that ends up distorting a marketplace.
Just as it is self interest that sets-up a system of governance that benefits the whole of society, so to it is selfishness that leads to a system that gives the majority what they want (rather than what they need).
Motto of the current zeitgeist
"It is, what it is."
Usually performed in a resigned tone.
It is what it is, is employed to answer many a situation where there appears to be little that can be done.
More precisely, it encapsulates the implied nihilism swimming beneath the surface of our modern secular culture.
Usually performed in a resigned tone.
It is what it is, is employed to answer many a situation where there appears to be little that can be done.
More precisely, it encapsulates the implied nihilism swimming beneath the surface of our modern secular culture.
Thursday, June 10, 2010
Tail Wagging the Dog
It used to be that an indexes movements were a function of changes in the underlying stocks.
But the advent of ETFs has changed that dynamic. Now the ETF moves first and it is up to the arbs to equalize constituency components.
I'm not 100% sure what the implications are of this change, but it doesn't sit well with me.
But the advent of ETFs has changed that dynamic. Now the ETF moves first and it is up to the arbs to equalize constituency components.
I'm not 100% sure what the implications are of this change, but it doesn't sit well with me.
Thursday, May 27, 2010
I See Nothing But Delevering In The Future!
I see nothing but delevering in the future!
But, is that necessarily bad?
It all depends upon valuation.* If valuations are low, then future returns are likely to be high. If valuations are high, then future returns are likely to be low.
So, where are we at? Based on future earnings, valuations are significantly below the avg. PE of the last 25 years, and a little below long term avg. multiples. The question then becomes, how confident are you in future earnings expectations, and what do you believe the market is likely to pay for earnings in the future. I'm pretty skeptical. Earnings expectations seem a little (make that a lot) optimistic to me. But if they are close to reality, then valuation is in the middle of the range, and returns will mirror earnings growth.**
Of course, economic, social, and political distress are likely to weigh negatively upon multiples. And I see lots of economic (and likely some social/political) distress in the future as governments and consumers are forced to delever and the fissures in the system are put to the test. If the deleveraging process doesn't happen (and we continue to prop the system up with fiscal and monetary stimulus), then financial armageddon is all but assured. But, in that situation, we could cruise along for a few years before the wheels completely fall off.
If I am anywhere near the ballpark, then that confluence of factors could easily see the market trading at a trough multiple of 10 against normalized earnings of $60, translating into a level of 600 on the S&P 500. Such a bearish scenario goes up against the following positive drivers: global economy now on the positive side of the cycle; the natural inertia within the system; the basic resiliency of people and economies; the emergence of the third world; the chance that true political solutions are put in place; and, the potential for multiple expansion based on positive developments.
*One of the best things going for the market at the moment is the fact that we experienced a reset in asset prices back in 2008-09. The critical element in valuation, and consequently the related return, is the multiple the market is prepared to pay for a given level of earnings. If it is higher than todays present multiple, then in all likelihood, returns will be positive. If lower, then returns are likely to be sub-par.
**Much in the same way that asset prices were reset in 2008, so to were earnings levels reset. Long term earnings growth is between 4%-6% pa. With us coming out of recession it is probably not unreasonable to expect earnings growth a little higher than the long term average growth rate.
But, is that necessarily bad?
It all depends upon valuation.* If valuations are low, then future returns are likely to be high. If valuations are high, then future returns are likely to be low.
So, where are we at? Based on future earnings, valuations are significantly below the avg. PE of the last 25 years, and a little below long term avg. multiples. The question then becomes, how confident are you in future earnings expectations, and what do you believe the market is likely to pay for earnings in the future. I'm pretty skeptical. Earnings expectations seem a little (make that a lot) optimistic to me. But if they are close to reality, then valuation is in the middle of the range, and returns will mirror earnings growth.**
Of course, economic, social, and political distress are likely to weigh negatively upon multiples. And I see lots of economic (and likely some social/political) distress in the future as governments and consumers are forced to delever and the fissures in the system are put to the test. If the deleveraging process doesn't happen (and we continue to prop the system up with fiscal and monetary stimulus), then financial armageddon is all but assured. But, in that situation, we could cruise along for a few years before the wheels completely fall off.
If I am anywhere near the ballpark, then that confluence of factors could easily see the market trading at a trough multiple of 10 against normalized earnings of $60, translating into a level of 600 on the S&P 500. Such a bearish scenario goes up against the following positive drivers: global economy now on the positive side of the cycle; the natural inertia within the system; the basic resiliency of people and economies; the emergence of the third world; the chance that true political solutions are put in place; and, the potential for multiple expansion based on positive developments.
*One of the best things going for the market at the moment is the fact that we experienced a reset in asset prices back in 2008-09. The critical element in valuation, and consequently the related return, is the multiple the market is prepared to pay for a given level of earnings. If it is higher than todays present multiple, then in all likelihood, returns will be positive. If lower, then returns are likely to be sub-par.
**Much in the same way that asset prices were reset in 2008, so to were earnings levels reset. Long term earnings growth is between 4%-6% pa. With us coming out of recession it is probably not unreasonable to expect earnings growth a little higher than the long term average growth rate.
Monday, May 17, 2010
Choppy Markets
Choppy markets. More careful navigation required. May want to book some of those accrued profits.
The markets are sending up signs of discontent. Greece/Eurozone crisis, flash crash, silent Chinese meltdown, Gulf oil spill, falling interest rates, Euro decline.
I'm looking to a faltering of the Consumer Discretionary sector and SMIDs vs large caps relative performance for signs of trend reversal and changed sentiment/risk appetite. We've seen a few inklings, but no real break, yet.
The summer doldrums could give way to hurricane season, although most of the fundamental action is not likely to play out until 2011.
Strategas reckons we've got the greenlight until fiscal/monetary withdrawal becomes a closer reality. Possibly. That would mean we continue to party in 2010. Time will tell, as they say.
Stay tuned.
The markets are sending up signs of discontent. Greece/Eurozone crisis, flash crash, silent Chinese meltdown, Gulf oil spill, falling interest rates, Euro decline.
I'm looking to a faltering of the Consumer Discretionary sector and SMIDs vs large caps relative performance for signs of trend reversal and changed sentiment/risk appetite. We've seen a few inklings, but no real break, yet.
The summer doldrums could give way to hurricane season, although most of the fundamental action is not likely to play out until 2011.
Strategas reckons we've got the greenlight until fiscal/monetary withdrawal becomes a closer reality. Possibly. That would mean we continue to party in 2010. Time will tell, as they say.
Stay tuned.
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