Pretty cool bull case!

Pretty cool bull case!


Stray_Reflections.pdf (3.73 MB)

Andreas,
Where does the author of this report get his data from? On page 16, near the bottom, he states:
“In our current experience, the S&P 500 fell 15% (which seems fair given the delayed tightening), and the spread between 10- and 2-year rates has dropped to 55 bps.”

10- and 2-year Treasury yields are currently 1.87 and 0.83, the spread being 104 basis points, not 55 bps. From Jan-2015 to now the minimum value of the spread was 95 bps (March-8-2016).
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Guess if one checked all his other data one would find similar discrepancies.

I didn’t see much of a bull case there.

He deeply analyzed three issues (Chinese currency, oil prices, recession threat) in support of his expectation that the market won’t collapse. But then, he finally got to the main concern, the end of the 35-year onslaught of liquidity being pumped into the US monetary system, finally stated the main question (whether increased profit growth can offset the impact of stable or rising interest rates) and just accepted that it’s happening with no real discussion or analysis. To make any sort of bull case, he’d have had to devote an entire report to the throwaway three-sentence paragraph he tossed in near the end of page 21.

So actually, he sees the world exactly the way I do. But . . .

This report scares me because it’s structure and flow – expound at length and distract on side issues while dismissing or ignoring the real one(s) --reminds me so much of what I saw making from supposedly reputable and respected bulls hyping in the months before the 10/87 crash, in the months before that late '98 crisis, in the months before the new economy bust, and in the months leading up to the 2008 crash.

Right now, I’m looking for sideways with more volatility than we’ve seen in a while (a continuation of what we’ve had for the past 12 months or so: http://www.forbes.com/sites/marcgerstein/2016/04/29/the-vix-volatility-index-is-low-but-im-still-worried-about-volatility/

But too many more reports like this and I may wind up pushed into the outright bear camp. :frowning:

It looks like this report was written around the start of the year, or at least before Apple sales crumbled in China :slight_smile:

Anyways, there is no mention of the problems in Europe or what will really happen in the U.S. and emerging markets when interest rates are normalized.

The head-and-shoulder pattern looks pretty ominous right now. I hope that doesn’t play out :slight_smile:

Steve

Edit. Sorry. I did no mean to click post. Great discussion!

When anyone talks about China describing the transition in its economy, I feel like scratching a blackboard.

“There has been some calm after knowing the GDP growth data from the first quarter, exactly the 6.7% forecast. It is generally acknowledged that the Chinese government needs to drive the country’s transition to an economic growth model based on services and productivity improvements, and it is also proclaimed the aspiration and determination of the Chinese government to lead such transformation. However, numbers tell a different story. The Chinese government has expanded sovereign debt at an annualized rate of 40% of GDP in the first quarter. That is, the Chinese government has spent 10% of GDP in the first quarter to aid in an economic growth below 7%. Such capital is flooding the real estate and commodities markets in China. Against the proposal of transforming the economic growth and improve it based on productivity increases and enhancement of consumption, the Chinese government has continued issuing debt and appreciating already existing assets.”

Like Marc stated, if this is the bullish case, it may be time to go fully bearish.

Also, I don’t know to which extent this is fully understood or even conceived of. There’s been a lot of patting in the back as a result of the dollar going lower and the calm that has perspired into some spaces, namely commodities, emerging markets and high yield.

However, a pernicious effect is rearing its head: the yen. Historically, there has been a strong correlation between periods of yen appreciation, Nikkei going down and the US markets going down afterwards. Theoretically the US market should lead all others but in this case the inverse has generally been the case. The US does not fund itself and has run a consistent current account deficit since as far as the eye can see. The biggest supplier of credit has been Japan which has seen its net international investment position swell over the last fifteen years. The Japanese are the world’s biggest net savers and investors. Yen strength can be a sign that Japanese investors start to repatriate assets, weakening global markets.

It’s my two cents but given that I rarely read anyone talk about this, to me it looks like a big deal.

I am not sure, but I think the Report was written some months ago. Not stating that I agree, just thought interesting to see somebody this bullish,
when everybody else is bearish.

By my rough estimation we are at a possible inflection point with the market having gotten back to its levels in November. I would be expecting greater probability of a breakout up or down therefore I find the price movement today potentially ominous. My chart and seasonal analysis has me negative. Anyone else applying any particular market timing analysis to the current market and producing signals?

my port goes to 100% short russel2000 today…

I really don’t see very much different now than in September 2014 when I began hedging due to, among other things, the energy mess. Different problems now dominating the news, but the world is still a mess. My hedges have ebbed and flowed between 30% and 60% of my long stock holdings since then, but I have been continuously hedged at one level or another since 09/2014.

FYI, I hedge with IEF, TLT, TZA, and SPXU at various ratios. For hedging I follow 4 ETF Ports that are independent of my long stock ports (which are not hedged). The 4 Port hedges are triggered by 2 or 3 different combinations of: #SPEPSCY crossover ,#SPEPSCNY crossover, #SPEPSQ crossover, R2000 Benchmark crossover, S&P500 benchmark crossover, 3 or more industries crossover, and Unemployment crossover. By using 4 different timing methods my total portfolio gradually moves into hedges as the 4 ports trigger a move. So far, all 4 ports have not been hedged at the same time.

I restate my long term bull case here for the US Stock market, reasons:

  1. Still, everybody is bearish, the big short produced retail investers that love to be bearish, its actually
    cool to be bearish, that is when bull markets are born, they do not colapse is such an evironment.
    Do not know what I mean, have a look at stockwits and watch real vision, at real vision 95%
    of the experts are bearish, on stocktwits 80% of the retail investors are bearish.
    Bull Markets do not end when 90% of the “experts” are bearish and say “sell everything”, they end in euphoria in a specific
    sector that drags the rest of the market up. 2000 Internet, 2008 Housing, then gold, comodities (“oil goes to 250”) and now bonds (not
    stocks, they will profit from the blow of of bonds, trillions will be not invested, if something is difficult for trillions, then
    it is not to be invested, parts will be invested in the stock market).

  2. Most important reason: Generation Y. It is a huge generation, bigger then the baby boomers and much bigger as the tiny generations X.
    Generation X “produced” the lost decade, they shut down hospitals, schools and they produced very low growth. Generation
    Y will hit the market and they are doing it now. Look at everything that works now, computer games (I believe that that pokemon
    stuff is just the first bit thing there will be bigger and more bigger things to come in this area), Trampolin etc.
    This generation will create a huge boom in the united states (though europe, russia and china, and japan are toast due to
    huge demographic problems!!!). The US will be again the powerhouse of the world a new area of good times will come to the US.
    This point of my argument is my strongest point. Gen Y is huge and they will buy houses, cars, etc. (I know
    you will say that they will not be able to, the same was said for the baby boomers)

  3. Politics. Trump will win, and he will deficit spend like hell and he might even better the conditions for the “have nots”.
    A lot of growth is toast because of wealth concentration in the top 10%, they got so much, that they do not spend
    it and they do not have servants in the 100s like a 100 years ago because it seems to be cool not to have servants
    any more in the billonare class.
    Defecit to BIP is low, trump will spend a hell of a lot in infrastructure and he will inject a lot into the economy.
    (herby I did not say, that I would vote for him, my wife comes from latin america, so we do not like him, he will
    win because people know, they want a change and they do not care what comes, but they want the change).

  4. Gold. Gold will go up as an inflation hedge, same with bitcoins, but this is not a reason for the stock market
    to tank. They will go up together, like in long phases of the past.

  5. Inflation will be back and when it will be back interest rates get hiked, slowly though so the market can adapt.
    Hiking interest rates will not shock the stock market like in the past.

  6. Oil will stay low and this will be a good thing for the economy. It has to stay low otherwise
    green energy will kill oil. Also fracking technology will emergy much furhter, they will lower the cost below 35 so
    those middle east oil producers will sell their stuff at that threshold level.

  7. Innovation: No generation before had this opportunity raising this amounts of capital and it is used and will be used big time.
    The US is the most innovative country of the world an this will go on. Innovation will thrive the market
    and ultimatly will be drive demand (look at the gaming industry, look at cars, look at green energy,
    look at fracking, look at IT and Big Data, look at robotics etc. etc.)

  8. This bull market is old and therefore will tank. No it is not, 2011 we hit the definition
    of a bear market and a lot of other sectors where in a bear market in between (energy).
    And bull markets after a lost decade (look at long term charts) can be much longer
    then 5 years!

  9. Technicals: Look at the SP500, its the most beautifull all time high I saw in my life time.

  10. Earnings: Will be back, they are depresed by oil and a strong dollar, both effects will
    vanish and they will pick up again.

  11. PE of 20 is not expensive with 0% Interests, the market is a relation machine and
    the relation to the valuation of bonds and in some sectors housing are great.
    Also the discount of future earnings at this low interest rates alow very easyly
    a PE of over 20 at the SP500 and earnings will pick up big time later this year.

I am not saying the market will not tank 20% in between, but it will not tank 50% like 2008
and 2000 so you can ride through. Its 1982 (the dow is up 18 times until then!) all over again! It is not 1996 it is not 2003 it
is 1982 and a huge opportunity lies in front of us. Beeing long US Equities is an
opportunity of our life times! THE LOST DECADE IS OVER!

Best Regards

Andreas

It will be fun to review this top 10 in a year from now…I would put a hedge on the Trump win though :slight_smile: Just in case…But either way, both candidates are going to do some more deficit spending.

Andreas - where are you getting your weed :slight_smile: You are right on with the contrarian aspect, but I have doubts about Trump. Clinton has the media on her side and that is difficult to overcome.

Steve

Well I will be in Colorado in October for 2 Weeks, so I will be tempted but give it a pass, here in Germany its illegal, so no weed.
Lets see what of the points is wrong or right in the months and years to come…

Regards

Andreas

Have a good time in Colorado; I lived there for many years.

My big question is what to do if and when the next recession arrives. Will it be like 2001 to 2003, when you could have made a lot of money in value stocks? Or will it be like 2007 to 2008 where there was no way to make money and you would have been better not investing at all? I’m not going to expect another recession until the unemployment rate goes up, but that could happen . . .

Yuval, in 2001 there were many stocks selling for very cheap. In 2007 there were very few. That’s a hint.

https://pensionpartners.com/the-volatility-cycle/ High Beta might come back! I thing should be good for a lot of models here on p123.

I saw another bull case from Robin Griffiths but starting in 2020 until then he says we are in big trouble.
Do not think so, if until 2020 positive effects will come to place (like generation Y that he refers to too.), then
the Fed will “bridge” us to that date.