Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
This continues to be one of the most hated bull markets, and yet the direction continues to be from lower left to upper right. I remain positive on global equity markets as the charts (20/50/100EMAs) continue to look attractive for the domestic (SPY, IJH, IWM) and developed (EFA, VEU, VSS) indices. The EM indices (EEM, EWX) still look decent, but they have weakened recently. If the charts break down and dips are not bought, then my opinion will change. But for now I will respect the charts and stay invested in my equity positions.
"This continues to be one of the most hated bull markets, and yet the direction continues to be from lower left to upper right."
And it'll continue to be hated until the moment it turns because people believe that monetary policy has created a castle built on sand rather than something sustainable that they can believe in and have even medium-term confidence in.
Junkster said "Whenever we do get a serious correction of 10% or more we will look back and suddenly see all the things we didn't see when the markets were at their tops."
Truer words were...
and Scott notes: "a castle built on sand rather than something sustainable..."
In retrospect every bull market was "a castle built on sand" when it's over.
Junkster said "Whenever we do get a serious correction of 10% or more we will look back and suddenly see all the things we didn't see when the markets were at their tops."
Truer words were...
and Scott notes: "a castle built on sand rather than something sustainable..."
In retrospect every bull market was "a castle built on sand" when it's over.
I think the last few have been more and more castles on built on sand, every one more than the last. People talk about how this particular bull market is hated, well, it's not that people hate it, it's that people don't believe in it or have confidence in it. And yeah, people can do very well during a period like this. It's someone's choice to participate in it or not (or, pull a Hussman and try to use silly things like logic, history and fundamentals to bet against it)
However, I think 1) when the bill comes due for this period it's going to be a doozy and 2) periods like this I think ultimately reinforce a shorter and shorter-term mentality. People and corporations don't make the same degree of longer-term investments (buybacks over building) because of their lack of confidence and clarity, which ultimately proves a negative longer-term for the broader economy and for many average people.
Then there's the matter of inequality, which has only gotten considerably worse in recent years.
People go, "Well, this will end badly, too." Well, if there was some attention paid to building up the broader economy and trying to be more competitive globally rather than 110% of focus on creating asset inflation, maybe people would have more confidence to invest for the long-term. Bernanke wanted asset inflation. Yellen wants asset inflation. The idea that this could end well after a .com and real estate bubble is Einstein's theory of insanity. You have a Fed who hopes that their optimism changes people's perceptions (this is very much a MOPE - Management of Perspective Economy), but their policies have ultimately given some part of the broader population less confidence in anything beyond the short-term as long as easy monetary policy continues.
Are all bull markets built on sand? Perhaps to varying degrees, but I think the last few have become built on increasingly flimsy foundations. People look at this and see that none of the mentality that proved to eventually be so destructive in 2008 has really gone anywhere. As I've said a million times before, what does the market wait for? The latest word from Yellen. Any news that is better-than-expected is thought of as a negative, because it may effect monetary policy. It's not a healthy economy and one that is entirely focused on every hint of movement in monetary policy over anything else.
Reading David's comments from the other threads bolstered my thought on whether this market continues up or turns bearish. If your doctor is treating you and doesn't know what to do next, you would loose faith in that doctor very quickly. In a similar fashion, David has talked to people who have given him answers before on all things market wise. Now they are shrugging their shoulders. David has no reason to question their judgement like the doctor in my example, but rather he is surprised at what he is hearing or the lack of.
This market has been strange for a while now. We are in unusual times with the bond situation. Add in the liquidity issue and it puts a cloud over things.
None of us has the crystal ball. It depends on one's age and tolerance for market down drafts. A younger person can ride out the storm if and when it comes. I find myself becoming more and more bearish these days. I have a plan in place when I feel I need to act. That is just being prudent. I have had some very good gains these past few years. I would hate to give them up at this stage in my life.
Reading David's comments from the other threads bolstered my thought on whether this market continues up or turns bearish. If your doctor is treating you and doesn't know what to do next, you would loose faith in that doctor very quickly.
This is really where I see things going. Basically, I couldn't agree more with what Paul Singer says at the link below.
@scott, After reading that ZH article, I think I'll pour three fingers of scotch.
Well, yeah. I just don't think it ends well, but everyone worries about another 2008/major decline. I'm just not sure it looks like that.
In 2008, you wanted to be in cash and bonds. My concern is that the next time around, you want to own assets, especially ones that fare well in an inflationary environment.
"In 2008, you wanted to be in cash and bonds. My concern is that the next time around, you want to own assets, especially ones that fare well in an inflationary environment."
That ties in with what Singer was stating in the article. He didn't say it directly but the impression I got was he would go with gold.
I previous years I mentioned that if and when inflation came about it would be swift and punishing. Of course, we haven't seen any of that. Another probability is stagflation but that too has been squashed. Right now I don't know what to believe.
My concern is that the next time around, you want to own assets, especially ones that fare well in an inflationary environment.
Arguably the cheapest and most shunned assets today are inflationary assets.
Here's an interesting article on the importance of understanding the direction inflation is trending. How inflation is trending (rising or falling) should be one guide to forming an asset allocation strategy.
"That ties in with what Singer was stating in the article. He didn't say it directly but the impression I got was he would go with gold. "
I think that's what was "implied" by the article in the commentary towards the end, but I don't think it gets to that point. The implication that is taken away is of the Zimbabwe nature - that yeah, stocks will do well but your "winnings" will not buy much of anything. I don't see a Weimar/Zimbabwe situation. I do fear more in the way of social unrest if we continue down the path we're on.
Do I worry that the dollar will no longer be the reserve currency in my lifetime and/or that the SDR will become the global reserve currency (note the other day that the IMF said that the Chinese Yuan was no longer overvalued and that they were considering adding it to the SDR basket)? Absolutely. I hope that we're not near that point but ultimately I think the reality is that the global economy will look quite different in 5-10-15 years versus today. After 2008, nothing really changed about the global landscape. I'm not so sure it'll be the same after the next crisis.
Nothing would really surprise me because we have a government that I think doesn't want to address structural flaws in the economy and thinks that monetary policy will fix things. Ultimately, it's stringing together sugar highs and then we wonder why it's not sustainable. It's kind of "Hotel California" monetary policy, "You can check out any time you like but you can never leave."
From the article: "And the more central banks push, the more bonds they have to monetize. Indeed, as shown in the chart above, in 2015 central banks will inject a record amount of liquidity into the global market, surpassing even the year of the Great Financial Crisis! All this liquidity pushes stocks higher... and drives yields lower.
At the same time, and here we fully agree with Singer, the global economy continues to deteriorate as ever more zero-cost, money equivalent debt is piled up, debt which will implode the second yield shoot higher and lead to a global domino-like default wave while the rich get richer courtesy of their risk asset holdings, pushing class inequality to record levels and beyond, and leading other legendary hedge fund managers such as Paul Tudor Jones to hint that it all will end in either war or revolution."
From the article: "The goal of leaders of developed nations and their central bankers should be more or less the same: enhanced growth and financial stability. But somehow the principal policy goal of both has become to generate more inflation. Both extreme deflation (credit collapse) and extreme inflation (which forces citizens to forego normal economic activities and become traders and speculators in a desperate attempt to keep up with the erosion of savings and value) are threats to societal stability, and we don’t actually think there is much to choose from between those extremes. But central bankers are completely focused on erasing any chance of deflation, and the tool to do so – currency debasement – is certainly near to hand. Therefore, the likelihood of deflation is highly remote. By contrast, the central bankers’ universal belief that inflation is easy to deal with if it accidentally overheats is arrogant and not supported by the historical record.
Furthermore, we fail to comprehend how owners of claims on money (that is, bondholders) can continue to ignore the fact that the goal of generating more inflation is aimed precisely at reducing the value of their capital. Central bankers obviously do not understand that the modern financial system is almost impossible to “manage,” and is fundamentally unsound as currently structured and leveraged. Given that reality, why should bondholders believe that central banks are capable of creating just enough inflation, and not a farthing more, in their current quest to rebubble-ize the world? We also question why bondholders believe that if inflation bursts its dictated boundaries despite central bank scolding, that policymakers can indeed, as a former Fed chairman and now immodest citizen blogger and incoming hedge fund advisor (Ben Bernanke) has said, cure it in “10 minutes.” We call to your attention the hand-wringing and agonizing now underway about raising U.S. policy rates by 25, 50 or 75 basis points over the next few months. Imagine the caterwauling in global financial markets if inflation surprises everyone on the upside and the right policy rate should be 2%, 4% or higher.
The central bankers of the developed world are the architects and enablers of a policy mix whose most powerful result is to further enrich the already well-off, which is clearly posing a challenge to the social fabric of the developed world. It is possible that this situation could worsen if central bankers, frustrated by their economies’ refusal to dance to their incessant piping, step up the pace of their bond-buying and possibly convert it to more direct forms of money-printing, which at some point is certain to ignite the inflation that they have been trying merely to kindle. Don’t fall out of your seats if inflation then burns right through the finely-tuned “target” and keeps on going. If this happens, we all may find out whether they indeed can, or have the courage to, stop inflation in “10 minutes."
I mean, you have the WSJ scolding consumers for not spending (the comments section for that is great reading.)
My concern is that monetary policy is taken to its outer limits when it becomes clear that they are not getting the traction that they desire. Eventually they get the inflation they want and - as I've said - the Fed acts as if the global economy is an air conditioner they can dial up and down. It would not surprise me if they wanted 3% and if psychology tipped, it would go right through that.
I have nothing against precious metals, but I actually am - as I've said many times - fond of productive hard assets and needs (healthcare, staples.)
And maybe I'm wrong, but honestly, I just sleep better at night with the idea of preparing for an inflationary outcome to this (and it's not as if the Fed doesn't want inflation, it's can they get the inflation they want and not a bit more.)
If I'm wrong and this ends in another 2008 where you want bonds and the stock market gets obliterated, then the Fed is going to have to answer some questions about why we had four QE's and several years of ZIRP and wound up back at square one. Again, I just think - and there may be some volatility and major corrections - this ultimately heads in the inflationary direction when it's all said and done.
Wronger than not, Singer has often been a pretty good contrary indicator.
This discussion, and wording like 'not ending well', are pretty amazing to me. What do end and well mean? With enough time, it has never not ended well.
I believe the markets will trade in a rather narrow range the next several months. However, I'm getting a feeling that correction clouds are gathering in the distance. My holdings are approximately 30% Farm Land, 30% Domestic Stock, 15% Foreign Stock, 15% Bond and 10% Cash and Silver.
I thought I’d update my earlier post, of May 20th, with some new information now that Doug Short has updated his monthly reporting on P/E Ratios and valuation for the S&P 500 Index.
It was previously reported that the S&P 500 TTM Earnings would be running in the $102 range through September; and, this has now has been revised downward to the $98.00 range in his most recent June reporting. For information purposes TTM Earnings peaked in the fourth quarter in the $105 range. This is quite a drop … don’t you think? I do.
For those interested I have provided a link to Mr. Short's information.
I am still running with my current asset allocation of about 20% cash, 20% income, 50% equity and 10% other as determined by my most recent Xray analysis of June 1st.
With this, my near term outlook remains bearish ... and, I feel a pull back is indeed possible and most likely coming before we see fall.
Comments
Kevin
And it'll continue to be hated until the moment it turns because people believe that monetary policy has created a castle built on sand rather than something sustainable that they can believe in and have even medium-term confidence in.
Truer words were...
and Scott notes: "a castle built on sand rather than something sustainable..."
In retrospect every bull market was "a castle built on sand" when it's over.
However, I think 1) when the bill comes due for this period it's going to be a doozy and 2) periods like this I think ultimately reinforce a shorter and shorter-term mentality. People and corporations don't make the same degree of longer-term investments (buybacks over building) because of their lack of confidence and clarity, which ultimately proves a negative longer-term for the broader economy and for many average people.
Then there's the matter of inequality, which has only gotten considerably worse in recent years.
People go, "Well, this will end badly, too." Well, if there was some attention paid to building up the broader economy and trying to be more competitive globally rather than 110% of focus on creating asset inflation, maybe people would have more confidence to invest for the long-term. Bernanke wanted asset inflation. Yellen wants asset inflation. The idea that this could end well after a .com and real estate bubble is Einstein's theory of insanity. You have a Fed who hopes that their optimism changes people's perceptions (this is very much a MOPE - Management of Perspective Economy), but their policies have ultimately given some part of the broader population less confidence in anything beyond the short-term as long as easy monetary policy continues.
Are all bull markets built on sand? Perhaps to varying degrees, but I think the last few have become built on increasingly flimsy foundations. People look at this and see that none of the mentality that proved to eventually be so destructive in 2008 has really gone anywhere. As I've said a million times before, what does the market wait for? The latest word from Yellen. Any news that is better-than-expected is thought of as a negative, because it may effect monetary policy. It's not a healthy economy and one that is entirely focused on every hint of movement in monetary policy over anything else.
This market has been strange for a while now. We are in unusual times with the bond situation. Add in the liquidity issue and it puts a cloud over things.
None of us has the crystal ball. It depends on one's age and tolerance for market down drafts. A younger person can ride out the storm if and when it comes. I find myself becoming more and more bearish these days. I have a plan in place when I feel I need to act. That is just being prudent. I have had some very good gains these past few years. I would hate to give them up at this stage in my life.
http://www.zerohedge.com/news/2015-05-27/billionaire-hedge-fund-manager-paul-singer-reveals-bigger-short
That said, I'm younger than most if not all of the people on this board. Anyone near/in retirement understandably should be cautious/quite cautious.
In 2008, you wanted to be in cash and bonds. My concern is that the next time around, you want to own assets, especially ones that fare well in an inflationary environment.
That ties in with what Singer was stating in the article. He didn't say it directly but the impression I got was he would go with gold.
I previous years I mentioned that if and when inflation came about it would be swift and punishing. Of course, we haven't seen any of that. Another probability is stagflation but that too has been squashed. Right now I don't know what to believe.
Good discussion @scott.
Here's an interesting article on the importance of understanding the direction inflation is trending. How inflation is trending (rising or falling) should be one guide to forming an asset allocation strategy.
Inflation Guide: How-does-the-inflation-trend-affect-your-asset-allocation?
I think that's what was "implied" by the article in the commentary towards the end, but I don't think it gets to that point. The implication that is taken away is of the Zimbabwe nature - that yeah, stocks will do well but your "winnings" will not buy much of anything. I don't see a Weimar/Zimbabwe situation. I do fear more in the way of social unrest if we continue down the path we're on.
Do I worry that the dollar will no longer be the reserve currency in my lifetime and/or that the SDR will become the global reserve currency (note the other day that the IMF said that the Chinese Yuan was no longer overvalued and that they were considering adding it to the SDR basket)? Absolutely. I hope that we're not near that point but ultimately I think the reality is that the global economy will look quite different in 5-10-15 years versus today. After 2008, nothing really changed about the global landscape. I'm not so sure it'll be the same after the next crisis.
Nothing would really surprise me because we have a government that I think doesn't want to address structural flaws in the economy and thinks that monetary policy will fix things. Ultimately, it's stringing together sugar highs and then we wonder why it's not sustainable. It's kind of "Hotel California" monetary policy, "You can check out any time you like but you can never leave."
From the article: "And the more central banks push, the more bonds they have to monetize. Indeed, as shown in the chart above, in 2015 central banks will inject a record amount of liquidity into the global market, surpassing even the year of the Great Financial Crisis! All this liquidity pushes stocks higher... and drives yields lower.
At the same time, and here we fully agree with Singer, the global economy continues to deteriorate as ever more zero-cost, money equivalent debt is piled up, debt which will implode the second yield shoot higher and lead to a global domino-like default wave while the rich get richer courtesy of their risk asset holdings, pushing class inequality to record levels and beyond, and leading other legendary hedge fund managers such as Paul Tudor Jones to hint that it all will end in either war or revolution."
Paul Tudor Jones on inequality: http://www.businessinsider.com/paul-tudor-jones-on-inequality-2015-3
From the article:
"The goal of leaders of developed nations and their central bankers should be more or less the same: enhanced growth and financial stability. But somehow the principal policy goal of both has become to generate more inflation. Both extreme deflation (credit collapse) and extreme inflation (which forces citizens to forego normal economic activities and become traders and speculators in a desperate attempt to keep up with the erosion of savings and value) are threats to societal stability, and we don’t actually think there is much to choose from between those extremes. But central bankers are completely focused on erasing any chance of deflation, and the tool to do so – currency debasement – is certainly near to hand. Therefore, the likelihood of deflation is highly remote. By contrast, the central bankers’ universal belief that inflation is easy to deal with if it accidentally overheats is arrogant and not supported by the historical record.
Furthermore, we fail to comprehend how owners of claims on money (that is, bondholders) can continue to ignore the fact that the goal of generating more inflation is aimed precisely at reducing the value of their capital. Central bankers obviously do not understand that the modern financial system is almost impossible to “manage,” and is fundamentally unsound as currently structured and leveraged. Given that reality, why should bondholders believe that central banks are capable of creating just enough inflation, and not a farthing more, in their current quest to rebubble-ize the world? We also question why bondholders believe that if inflation bursts its dictated boundaries despite central bank scolding, that policymakers can indeed, as a former Fed chairman and now immodest citizen blogger and incoming hedge fund advisor (Ben Bernanke) has said, cure it in “10 minutes.” We call to your attention the hand-wringing and agonizing now underway about raising U.S. policy rates by 25, 50 or 75 basis points over the next few months. Imagine the caterwauling in global financial markets if inflation surprises everyone on the upside and the right policy rate should be 2%, 4% or higher.
The central bankers of the developed world are the architects and enablers of a policy mix whose most powerful result is to further enrich the already well-off, which is clearly posing a challenge to the social fabric of the developed world. It is possible that this situation could worsen if central bankers, frustrated by their economies’ refusal to dance to their incessant piping, step up the pace of their bond-buying and possibly convert it to more direct forms of money-printing, which at some point is certain to ignite the inflation that they have been trying merely to kindle. Don’t fall out of your seats if inflation then burns right through the finely-tuned “target” and keeps on going. If this happens, we all may find out whether they indeed can, or have the courage to, stop inflation in “10 minutes."
I mean, you have the WSJ scolding consumers for not spending (the comments section for that is great reading.)
http://blogs.wsj.com/economics/2015/06/02/grand-central-a-letter-to-stingy-american-consumers/
My concern is that monetary policy is taken to its outer limits when it becomes clear that they are not getting the traction that they desire. Eventually they get the inflation they want and - as I've said - the Fed acts as if the global economy is an air conditioner they can dial up and down. It would not surprise me if they wanted 3% and if psychology tipped, it would go right through that.
I have nothing against precious metals, but I actually am - as I've said many times - fond of productive hard assets and needs (healthcare, staples.)
And maybe I'm wrong, but honestly, I just sleep better at night with the idea of preparing for an inflationary outcome to this (and it's not as if the Fed doesn't want inflation, it's can they get the inflation they want and not a bit more.)
If I'm wrong and this ends in another 2008 where you want bonds and the stock market gets obliterated, then the Fed is going to have to answer some questions about why we had four QE's and several years of ZIRP and wound up back at square one. Again, I just think - and there may be some volatility and major corrections - this ultimately heads in the inflationary direction when it's all said and done.
This discussion, and wording like 'not ending well', are pretty amazing to me. What do end and well mean? With enough time, it has never not ended well.
I thought I’d update my earlier post, of May 20th, with some new information now that Doug Short has updated his monthly reporting on P/E Ratios and valuation for the S&P 500 Index.
It was previously reported that the S&P 500 TTM Earnings would be running in the $102 range through September; and, this has now has been revised downward to the $98.00 range in his most recent June reporting. For information purposes TTM Earnings peaked in the fourth quarter in the $105 range. This is quite a drop … don’t you think? I do.
For those interested I have provided a link to Mr. Short's information.
http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php
I am still running with my current asset allocation of about 20% cash, 20% income, 50% equity and 10% other as determined by my most recent Xray analysis of June 1st.
With this, my near term outlook remains bearish ... and, I feel a pull back is indeed possible and most likely coming before we see fall.
Old_Skeet
You are set for pretty much anything that should come along.