About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Wednesday, January 16, 2019

Stock Market -- The Thundering Herd

Going into Christmas, the herd was stampeding downhill. Following the holiday, the herd has
reversed course and is now on a moonshot trajectory (75 degree angle of ascent). The Fed was
brought under assault from many quarters for running too tight a monetary policy as the year
wore down and it relented on interest rate policy. One can argue that chair Powell had no genuine
theoretical premise for the policy of gradually but steadily raising short rates, and the Fed has
ceded control over rate setting to the demands of risk capital for now.

In my last post, I posited that the SPX had reached reasonable levels down at 2350 and I briefly
sketched out a rationale for saying 2650 was an OK fair value estimate for the 2019 - 2020
period. The post-Christmas spike low and moonshot rally is statistically suspect, but lo and
behold, the SPX has been running back up toward the 2650 level. I find this performance to be
astounding and the emotional roller coaster that market players have been on over the past 12 -
14 odd months to be something of a bad joke.

It would be comforting to me at least if investors began to pause in the weeks ahead to review
what they have wrought and to take stock in a calmer assessment of what uncertainties and
opportunities may lie ahead.

SPX Weekly

Tuesday, December 25, 2018

SPX -- Update

Santa was a no show, contrary to my hopes. Instead, and through Christmas Eve, we have an SPX
in fee fall on a bear chart, as players who were wildly enthusiastic at the outset of the year, turned
panicky toward the very end. I would suggest against trying to call a bottom to this panic until
some degree of stabilization shows up. The decline in the SPX below its 200 day m/a has been
steep enough to render the market deeply oversold on an intermediate term basis, but history
shows declines of this magnitude have further downside to go as often as not.  SPX Daily

Everyone knows about concerns regarding a slowdown of US economic growth in the context of
slowing global economic demand. We also know that the US vs. China trade spat could intensify,
and that there are issues in Europe including Brexit, Italy and socio-political worries. We now
also have The Donald threatening the Fed and exhibiting inconsistency on a wide range of
domestic and foreign policy issues. Overt meddling with the Fed is inherently dangerous.

Even if the US economy slows down significantly over 2019 - 20, as long as no clear warnings of
recession show up, the SPX is reasonably priced on basic fundamentals so long as businesses
continue to show positive cash flow and the financial system can retain most of its current
relatively strong position. Based on the fundamentals, I would not quibble with assigning fair
value of 2650 to the SPX through early 2020. However, investors need to watch the Fed like
hawks to assure themselves that They are not removing liquidity too quickly through the QT

I did argue last year that the 2019 - 20 interval would involve a deep sell - off in the market.
History shows that strong declines tend to occur every 7 - 9 years, and the market is running
overdue. I do not know whether the current free fall pattern is the kick off or not. I would be
delighted if we could make it through the Trump term ending in early 2021 at 2500. 

Monday, December 10, 2018

SPX -- Where's The Holiday Spirit?

Both the US economy and the global economy at large should experience further slowdowns next
year and SPX earnings estimates are being clipped. Today, on an intraday basis, the market tested
critical support at 2600 before rallying up from it. My analysis of a host of intermediate term
indicators plainly suggests that the SPX is vulnerable to further downside before a less risky
long side trade would be warranted. But, and call me a sentimental old fool, 2018 was a good
year for the US economy and though there are well known risks for next year, it is outre in my
view to have the market break lower over Christmastide for God sake. Let's have a nice holiday
season and salt the worries about next year away until January. SPX Daily

Sunday, November 25, 2018

Stock Market update -- Fundamentals

The US economy is showing numerous preliminary signs that a slowdown is dawning. As well,
the various leading eco. indicators have been losing positive momentum since early this year
and this steady trend signals a slowdown of growth ahead. My analysis finds nothing serious
yet and I conclude it is premature to talk about a recession. But there maybe a pronounced
downturn in the expansion ahead and critical as always will be inventory management by all
levels of business. The supply management software is there to provide comprehensive and
timely inventory data right down to mom/pop businesses. What I watch in the short run is
inventory to sales data and any signs there may be inventory speculation underway. With
inflation still modest and with short rates even for prime borrowers now running at least 2%,
there is sufficient reason avoid speculation and manage working capital carefully. 'Wolf at the
door' recession scenarios do not seem appropriate at this time.

However, a pronounced economic slowdown will have an adverse impact on profit estimates
and I think the market has already started the process of discounting more modest growth in
business profits as the US appears set to join a global slowdown.

Whether the recent stock market correction is sufficient to allay most fears is hard to say, but
it is tougher to expect strong and sustainable price rallies when market players are concerned
the longer term direction of profits growth momentum may be more sluggish than recently
thought likely.

The Fed is coming under increasing and substantial pressure to slow or even halt its policy of
tightening credit via hikes in short rates. If the Fed succumbs to the pressure, it may trigger a
'relief' up leg in stocks, but such an event will only serve to complicate the Fed's job later on
when a final stage economic expansion may develop. You also need to keep in mind that the
Fed still seems intent on shrinking financial liquidity via downsizing its balance sheet.
So far, the possible deflationary impact on p/e ratios from this  era of liquidity tightening has
been displaced by large fiscal stimulus and deficit budget financing. but without additional fiscal
loosening measures, the quantitative tightening under way will re-assert itself with probable
negative effects for the various forms of risk capital to occur down the road.

A heavy duty trade war with China will be broadly economically destructive. Let us hope that
the principals can finesse the situation, but I suggest you keep in mind that neither Xi or The
Donald are the sharpest knives in the drawer by any stretch.

Sunday, November 18, 2018

Stock Market Update -- SPX Chart

I'll tackle the fundamentals later in the week, but let's look at the chart first.  SPX Weekly

The market just closed a touch above the long term trend line going back to 2009. So, it is still a
cyclical bull of long duration. However, the important trend up from early 2016 has been
broken, and that uptrend marked the third wave up for the market since 2009. So, by my
reckoning, it remains to be seen whether the bull may soon run out of gas or whether there is
some sort of bonus round up in store.

Note that the 40wk. m/a of the SPX has recently turned down for the first time since the second
half of 2015. There can be sudden whipsaws here, but a downward shift in the 40wk. m/a often
signals further weakness lies ahead even if it is not especially dramatic. The market is oversold in
the short run, and sentiment is rather bearish. So, there could be a bounce ahead, and looking at
the stochastic in the top panel, there is reason for optimism in that positive turns in this measure
after it reaches a low point often do signal a bounce. Naturally, there can be a whipsaw here, too.

There are still plenty of players out there who do not see a cyclical top in this market until some
time next year. To accomplish this, the negative downtrends in SPX momentum since earlier this
year, as captured by the MACD and KST measures in the bottom two channels of the chart,
would have to reverse in a significant positive fashion. Now, to be fair to the bears out there, it is
worth saying that intermediate downtrends in price momentum measures often presage actual
further price corrections in the market.

I have said in the recent past that this has been a lovely ride up from the depths of 2009, and that
this market really does not owe us anything now, given how close we were to true economic
disaster or Armageddon over 2008-09. So, for now I am content to see the SPX trade in a range
of  2600-2850, and I would be delighted if we can make it through 2020 at SPX 2500.

Sunday, October 14, 2018

Stock Market Update

Back in January of this year, I argued that the market was way overbought and that the odds of
continued strong, positive performance were very low. Here we are in October with the SPX
trading a little below its Jan. high.The big premium in the SPX over its 40 week m/a has finally
been wrung out. Long term, the market is still in a positive mode, but barely so. Moreover, the
intermediate term reading of the important MACD indicator is on the cusp of turning down and,
the major supporting trend lines have all been violated. Conveniently, the SPX has just had an
OK test of the 40 week m/a. However, from a technical perspective it will soon need a fresh upleg
to keep the bull intact.  SPX Weekly

From a cyclical perspective, the economy is gracefully edging into the twilight of its expansion
period. The labor market has tightened with skilled workers now at a premium. There is some
idle productive capacity in the system, but we cannot be sure how economic it is. On the plus
side, my short term credit supply / demand pressure gauge is in reasonable balance and banking
system liquidity is in decent shape. Inflation has been accelerating, but the trend has been rather
mild and uneven. Interest rates, short to long term, remain in firm cyclical up trends although
the bond market, ever sensitive to the degree of economic momentum, continues volatile.

Business sales and earnings growth has exceeded expectations this year and with inflation
running mild, investor consensus now has the SPX rising to the 3000 level as the current year
winds down, with further gains projected through mid - 2019. Beyond that point, market
players are considerably less sure of continued progress.

I do not now have a compelling argument to deny the bulls another round of up sweep for
the SPX over the next six to nine months. But do not tarry boys.

Tuesday, July 10, 2018

Stock And Bond Markets

As a long time conservative and highly disciplined markets player, I have to say that both the
stock and bond market are just too rich for my blood. I have some major retirement projects
at hand, but before going, I will leave some commentary on the major capital markets.

I have to say that with the market just below its most long term overbought condition in nearly 40
years, I have been a little surprised that we have not seen a more negative reaction. I do not pretend
to have a good idea of how stocks will behave for the rest of 2018, but I have some suspicions. For
one, I believe the bigger funds are playing the presidential election cycle. This is year two of The
Donald's reign, and in keeping with the cycle, players are expecting a strong positive run later in
2018, with a consensus high for the year of about SPX 3000. I also suspect that most big time
investors expect the current Trump initiated trade conflicts to remain inherently modest and not
escalate into a much larger and open ended trade war with the US vs. China the key players. In my
view China's aggressive mercantilism needs a nasty comeuppance, but Trump may not want to
call in heavy fire on his own position. As The Donald himself likes to say, "We'll have to wait and
see" on this one. The market also does not seem very concerned about a Dem "blue wave" victory
in the upcoming mid term election this Nov. Lord, would such an event shake things up in DC.

The SPX is now currently rising above my estimate of SPX fair value of 2720 to run well into
2019. This is a rather liberal estimate and leaves significant downside for the market if the
fundamentals disappoint expectations. The market has broken its trend line off the 2016 low, but
is still postive above its rising 40 week m/a. SPX weekly  I would have an interest in a long side
trade if the SPX somehow rolls on down to 2500.

By the way, should the SPX enter a strong, late cycle powerful rally up to 3200 by early 2019,
it will have reached bubble territory on my super long term semi-log chart.

Bond Market
Right now, I would not trade the 30yr Treasury in my account below  4%. However, as the
cycle progresses toward an eventual economic downturn, and if the inflation rate is still
modest, that would suggest to me that a fresh recession could again introduce deflation, and
that would introduce a new element of interest for sure.

Gold Price
I am monitoring this one for a long side trade provided the USD falls sharply out of favor.

I plan to return to the blog again in November.