It isn’t that hard to see the future, at least when it comes to markets and where we go next. There are a lot of tools that even us “small fry” investors can use to improve our odds, but a surprising number of people seem content to make a single decision and hold with a position through thick and thin, with the off-base thought that things will average out in the end.
Sure, it is nominally true, but buy and hold from the market peak in 1929 would have killed your family fortune. The stock market didn’t recover from the 1929 debacle until the 1950’s. From the market peak on 9/3/1929 at 381.17, we went down like crazy and it took a world war and more than 20 years to claw back up. On December 31, 1949, for example, the market was still down at 200.13. Buy and hold disaster example #1.
A further example may be found – more recently – in broader indices – as well. Take the S&P: Bought at the top of the Internet Bubble (March 24, 2000 and 1,527.46, your portfolio could have languished until July 6, 2007 when the S&P again crested 1,530.
All of this is mentioned because we should still have about one more month to the upside – and maybe longer – before we get to the next significant market high. And, along the way, we anticipate some short, sharp sell-offs that we plan to play using the trading strategies discussed over on the www.peoplenomics.com site.
And although I almost pulled the trigger on an exit from a significant long position Tuesday, that order was canceled a few minutes before the open, and as it turns out, that was a very good decision.
Our crystal ball is far from perfect; if it were better I’d be aggressively playing options again. But we have come up with a grand new Big Picture tool and we’ll reveal that for PN subscribers Saturday.
In the meantime, we should trade sideways, and maybe give back a few cents today, but this view I shared a week or three back has filled out exactly as expected, except now we are almost up to the top of a trend channel where the short, sharp reversal should happen within two weeks and then up we should go toward the final highs.
I won’t go into a lot of detail about this chart (that’s for the paying folks in the front row over at Peoplenomics) except to say this is the daily chart of our unique Aggregate Index and using it, we can pretty clearly see how we can go sideways for another three or four weeks and then go short.
But the new “timing tool” we’ll discuss this weekend ought to augment our timing a fair bit.
Buy and hold is great, if you are young, inexperienced with trading, and so forth. While we don’t offer financial advice, I don’t mind sharing (after the fact) how we play things in our own accounts and we do put a fair emphasis on understanding how to grow wealth in under a wide range of economic conditions we’ve covered here in the last 20 years.
But Don’t Trust Me
Trust genius. A good starter is “Bill Gross warns of recession risk if highly levered economies hike rates.”
The government – or the non-governmental Fed if you want to look at it that way – has gotten itself in a pickle. If they raise rates, that will change the forward-earnings calculations and the market will expect higher returns from stocks. Problem: There’s ain’t none.
You see (if you’ve never managed a P&L – profit and loss ledger) there are only so many ways to kick-up profits. You can increase sales or you can decrease expenses. Since well-run companies are doing this all the time, the major driver becomes generic economic growth.
While the Housing starts Wednesday were OK, the problem is that with our massive change in tolerance for a wider assortment of genders and relationships, family formation – and birth rates are down…
This gets me to a familiar Peoplenomics topic.
The Vlad and Donald Story
There is a very useful story on point over in today’s NY Times. The problem is that you have to read the whole story to get the economic tells that are useful when framing a worldview.
The Times went with the angle on how president Trump would not have hired attorney general Jeff Sessions if he had known in advance that Sessions would have recused himself from the Russian email silliness.
But down in the body copy of the Times interview with Trump, we read this which is far more important to framing an economic worldview:
“Describing a newly disclosed informal conversation he had with President Vladimir V. Putin of Russia during a dinner of world leaders in Germany this month, Mr. Trump said they talked for about 15 minutes, mostly about “pleasantries.” But Mr. Trump did say that they talked “about adoption.” Mr. Putin banned American adoptions of Russian children in 2012 after the United States enacted sanctions on Russians accused of human rights abuses, an issue that remains a sore point in relations with Moscow.”
Now the explanation: This is absolutely critical because adoption is part and parcel of economic growth through immigration.
As we have modeled on the Peoplenomics side (more than a year ago, in fact) the way countries are trying to “buy some future growth” is by embracing immigration-based growth.
The Obama administration, for better or for worse, pushed open borders because it is a BUSINESS MODEL for democrats. People come into ‘Merica, register and next thing you know, a generation or three of solid demos.
The republicans have a different idea: They want to work on the utilization and innovation side. Onshoring may help because it will slow the Balance of Trade disaster and because reindustrialization would be a jobs bonanza at home.
The problem is NEITHER PARTY has communicated this Reality to the voters. Instead, arriving at this view doesn’t occur until you methodically look at how our favorite (ex?) commie, Angela Merkel has sopped up “growth” for Germany by brining in more peeps. So has France, a lot of the Scandahoovians, and so forth. The UK BREXIT, on the other hand, is in our view part cultural memory (the Crusades and kicking Muslims out of Europe once at a great price) and partly because the UK is about up to hear with socialism, especially of the sort that is unelected – exactly why the Brussel’s Sprouts earn the label megalomaniacs in many columns.
Brink-of-War moments – like the Ukrainian mess and the Russian moving into Eastern Ukraine – would likely never have happened had the Sprouts not spouted off about a European Unions “spanning from Portugal to Vladivostok…” Which was a shocker to Putin and Russia.
In the large context, this worldview also explains a lot of other differences between the U.S. and Russia. The Russians are less tolerant of LBGTQR (whatever) than we are because they know the straight people actually produce offspring at a higher rate than same-sex marriages. No, I’m not saying sperm banks don’t work, but run the numbers yourself and you’ll see it in a flash.
As we go into additional earnings reports today, here’s the simple metric we’ll be looking at: We expect that the winners in terms of gains in profitability will be those firms that have made the most effective use of ERSP and business process re-engineering.
That’s fairly simple to do with financial outfits. Stick an SIVR phone system ahead of a massive SQL ERP platform and who needs the humans?
On the other hand, the high-human-density firms are more problematic and their optimizations are more difficult to implement.
This should apply – but we’ll see how much today and tomorrow – as “Futures flat as investors await earnings deluge.”
Philly Fed Outlook
“The index for current manufacturing activity in the region decreased from a reading of 27.6 in June to 19.5 this month (see Chart 1). The index has been positive for 12 consecutive months, but July’s reading is the lowest since November. Thirty-seven percent of the firms indicated increases in activity in July, down from 42 percent last month. The shipments index decreased 16 points, while the new orders index fell 24 points. Nearly 31 percent of the respondents reported a rise in new orders this month, down from 45 percent in June. Both the delivery times and unfilled orders indexes were positive for the ninth consecutive month, suggesting longer delivery times and increases in unfilled orders.”
45-minutes before the open, the Dow was up 25, with more upside this week as we should come very close to the top of our trend channel.
Bash du Jour
The award today goes to CNN for “Trump’s first six months in office: 991 tweets and 0 pieces of major legislation.”
As we’ve said before, Trump is going “consumer direct” with POTUS comms and that could lead to collapsing news networks fueled by little more than bizarre stories and Gollywood tripe.
Al Gore: Unrepentant Climate Sales
Time has a Gore spew here: “8 Questions With Al Gore.”
Like ‘old-time religion’ the soft-ball questions get to such important things as what can an individual do? Rather than coldly looking at the data and wondering “So, what about that audit that shows virtually all of Climate Change is due to unwarranted statistical “adjustments?”
Climate change? We think snow job. We observe that Time didn’t ask about the Biggest snowfall in decades blankets Chile’s capital. ”
We will have to lump climate in with religion and politics as a total waste of time if you’re talking to a True Believer of any persuasion.
As of this morning we are christening Mr. Gore The Climate Lama. (The “Hot Pope” and “Cardinal Heat” didn’t test well with our focus group which consisted of Zeus the Cat…)
OK, time to gas up and become a lawn boy…more on the ‘morrow or moron tomorrow…we can never be too sure.