As much as people like Jim Paulsen and Tobias Levkovich seem incapable of seeing trouble coming and so provide no value when it is most needed, neither do people who never see anything but doom and apocalypse offer value. Talking heads from large brokerage firms seem to mostly have a bear markets are bad for business conflict (except for Albert Edwards and Dylan Grice) and government officials (whom Farrell also goes after in the article) cannot say something that would appear to be talking down the economy because they would make it worse. This is not a defense of the situation just the reality of it.
It is pretty obvious that most people are not aware of these conflicts and I can believe it contributes to the experience that many people have with investing.Farrell points out that the S&P 500 is not far from where it was ten years ago. As we've covered countless times a decade long round trip to nowhere is not unprecedented and also that while that was happening there were many markets that had "normal" returns for the decade.
The way to navigate this is to take in divergent opinions in conjunction with your own observations to draw your own conclusions. Yes, most people will not do this for one reason or another but you reading a stock market blog are better positioned for whatever reason to do this.
Before the crisis I was very clear that should the yield curve invert that I would heed that as a warning. I also noted that there would be explanations as to why the yield curve no longer mattered but that it would still matter. Whenever the yield curve next inverts the cycle will repeat. The consensus won't learn but you can.
I had trouble following why Farrell is predicting doom specifically this calendar year. As best as I could tell it is because other people that he thinks highly of are predicting bad things for later in the year. Early in 2009 I thought we could be in for some sort of huge snap back rally and at some point in there on the way to doubling I became very skeptical and have been ever since for the simple reason that while the extent of the decline was probably overdone (making some snapback inevitable) much of the market gain and economic growth has come thanks in some measure to desperate action undertaken by the Fed to pump things up. I think skepticism is warranted but trying to predict exactly when it ends probably makes less sense than just having some simple trigger point for taking defensive action (of course for me this is when the SPX breaches its 200 DMA).
The picture is of the Stanley Cup on the pitcher's mound at Fenway from yesterday when the Bruins threw a group first pitch to the Red Sox as the Cup took a victory lap before the Red Sox-Brewers game.
11 comments:
Roger, good morning. Would you share your thoughts on the Greek crisis at some point. It all feels quite over-blown to me, with lots of pure conjecture about falling dominoes.
Thanks very much.
the concern over dominoes relates to the cross ownership of various forms of debt. the proper haircut in Greek debt would hurt owners of that debt much of which is owned by neighboring countries and that kind of hit would/could result in the neighboring countries then needing bailouts of their own because of the damage this would cause.
I believe we have entered the Baby Boom Swoon; let me explain. All previous generations worked hard, reproduced, and tried to leave a better and more prosperous place for their prodigy than they had. We Baby Boomers (in the aggregate) did the opposite. Goodies were handed to us by our parents, we discovered birth control and had smaller families, we consumed, and we borrowed (in the aggregate via our governments) to enhance our present consumption and now pass the bill on to our prodigy (via our governments); nice, huh. The only solution is some combination of increased taxes, reduced promised "entitlements" benefits, and inflation; increases in productivity may (probably will) mitigate the situation, but will not solve it. Politicians, unions, savers and investors, labor, the electorate, etc. are all going to experience "shared sacrifice," like it or not, and the 20-30-somethings' standard of living and we 50-60-somethings' retirements will be something less than it otherwise would be, if it did not have the tremendous debt/tax burden overhang it has. Not a doom and gloom prediction, just reality; the stock market will still have up years and will probably still be the best place to invest. However, the fact that ever greater amounts of resources will be diverted from the more productive private sector to the non-productive/consumption oriented public sector is inevitable. My thoughts.
JCarr
I'm not sure that Grantham is predicting doom this year. It's been a while since I read Grantham's latest, but I just think he said it's coming, and Farrell added the "this year" part.
That said, I get tired of people who say "OMG INTERESTING RATE TIPPING POINT WATCH OUT IF RATES GO UP."
It's not like interest rates can go down. They have to go up at some point. You have to watch the rates, but an uptick in interest rates does not necessarily signal inflation.
The Doom and Gloomers fill a need; without them we would have europhia and an overvalued market. As for the economy, I believe that I read a research report that shows that when the perception of the economy is negative, that is the best time to invest. So, yes, I worry when most are positive and enjoy it when most are negative.
Wandering observation:
One thing that always appears to be missing is the subject of war.
Since war may be forwardly comtemplated but usually initiated by a set of unanticipated events, it is out of the domain of computer predictions, economic models and financial and social prognosticators sharing their thoughts on what is to come.
War (not the one-nation revenge type or nation-building type) on a regional, or perhaps global level is inevitable, as history has shown.Military leaders generally plan fighting the previous war instead of looking ahead. I view the next large conflict as being won or lost through cyber warfare, including a major emphasis on economic "battles" wiping out everything from governments ability to function to the financial world collapse banks to infrastructure controls. Why wage a war that destroys physical things and lays waste to countries forever? A bright area of the US military (away from backward thinkers) is tackling the problem, but admits candidly that there is no proven defense from a concentrated, overwhelming cyber attack in place. That is one reason why recently the US announced that cyber attacks may be viewed and responded to as an act of war with destructive weaponry used against the agressor.
Not that I'm a doom and gloomer - far from it. But I do take precautions such as having a current paper trail to all online financial accounts and activity. I also have a nice stash of good Partagas Cubans, some Jack, Slivovice (in case the going really gets rough) and my Remington just in case bankers unprepared for a hostile event storm my gates.
T
Why wage a war that destroys physical things and lays waste to countries forever?
Answer:
In the 70s, our country built just such a weapon called a Nuetron Bomb. It was rejected by the powers that be at the Pentagon for a simple reason. War is fun for those guys the fun part being blowing the living crap out of things. With the Nuetron Bomb, the military would be reduced to cleaning up dead bodies-not a task deemed fun for sure.
US stock markets may have been a round trip to nowhere for US based investors, but for us foreign investors it has been a round trip to nearly half of its original value because of USD depreciation and inflation.
If there is one positve, it's that at least everyone is starting to talk about the debt load; that was not true 10-15 years ago. Being how we are, humans and Americans, it will probably take us another 10-15 years to provide a solution. I wouldn't call that a dynamic society.
Message1
Roger,
saturday post got me very intrested in a swan like event. So, I have a formula that clocks such events when they happen, but does not give a warning as to when it will happen. Thay is easy eanough, mathematically. It registers a spike just like an earthquake. These spikes are in 08/1998, 07/2002, 10/2008. However, these spikes tell that the bottom is near, but does not tell in advance when they will happen. I remember that Ned Davis published a book before the 2000 crash (Being Right or Making Money). Well Ned Davis group in advance predicted a top but also in a barrons article in 07/2006 also predicted a top in advance. Barons 2006: http://bigpicture.typepad.com/comments/2006/07/signs_of_the_be.html
At this point I started to look at what ned davis is saying currently. Ned Davis in 2009 was bullish also in 2010 and I read in 11/2010 he starts being caution. Article: http://advisoranalyst.com/glablog/tag/ned-davis-research/
At this point I find Paul's article that quotes Ned Davis but comes up with a end of wall street scenario.
Jeff From Milan, Italy
Cont.....
Message2
My take: I think that the unfolding of the credit crisis from real estate to soverign now has not ended. The bull market that strarted in late '70 early '80 ended in 2000. This long bull where a correction was due made the fed do some stupid things where RE bubbles and credit bubble took place. This has not ended yet and some swan type events will take place. The question is when? A quote from Charles Munger is appropiate: If I know the place where I am going to die then it would be best to avoid it. Well we know that this swan event will produce this spike on this mathematical formula when the event is happening. We know that it happen in 1998, 2002 and 2008. Well we have a 4 and 6 years span. Looking at this cycle we should expect this black swan in 2012 or 2014. However, this swan even should start unfolding about a year before, meaning the market should hit a top a year before the swan event. So the market should hit a top eather 2011 or 2013 before this swan event. That is why 2011 is a very important year. On a Elliott wave formation. We had a down move from 2007 to 2009 forming a 5 wave. From 2009 to now we have made a 5 eave move to march 2010 a correction and another 5 wave move to april 2011. We can have another 5 wave move up after a correction or we can have a start of a big move down since the move from march 2009 to now can be considered an abc. What does it look like? A primary move up after this correction or a start a big bear market. Up to now some of my signals are for a correction and then a primary bull move. But a new indicator that I have just adapted is a leading indicator(leads for a month) is not giving an upmove in sight. Nasdaq has broken the 200EMA. S&P, Dow, have not yet. One indicator of mine that has been up from april 2009 has just started to turn over. The Nyse bullish indicator was 80% in feb/2011 and now is 53% a confirmed bear. The market is interesting, since it is a leading indicator, so we want to use all the indicators that can tell us what is doing, and I sure can trust Ned Davis.
Thanks Roger, but am new to this game and am trying to do the best to understang what is going on. A note about what you were saying that made me thing quite a bit. On friday Rimm tubled braeking in a decisive way a long support of 35. Some purchased 32 puts the day before friday that expire today. The puts went from .45 to 4.45. In 2009 I purchased Rimm on the way up and when Rimm went this time to support I was tempted to buy. What stopped me the new indicator that is regestring a down number every day. So, I saved lots of pain but also looking at this indicator told me that the support could be broken just like nokia csco and many others that keep on making 52week lows. Since I have adopted this indicator, I am trying to unload some positions. Last week I unloaded Teva. Purchased at 48.50 sold it at 48.75 ovoiding lots of pain. I only have 3 positions representing less that 10% of the portfolio. If there is a good move up which I have written here atht should be around this time, I will unload the rest and if these indicators are in neg territory, I may even get short which wanted from 4/29.
Thanks Roger,
Best,
Jeff from Milan, Italy
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