Thursday, February 27, 2014

Nick Colas on Bitcoin



Recently, I had the pleasure of interviewing Nick as part of NYSSA's newly created video series re his upcoming NYSSA presentation on Bitcoin.

To learn more and view the interview, click here."

Friday, February 21, 2014

You Shoulda Been There!

In case you missed it, here are two recent media and event appearances that yours truly had the privilege to be involved in:

Wednesday's Bloomberg radio segments
"Taking Stock with Pimm Fox and Carol Massar"

excerpt from NYSSA's January 9 "Market Forecast" luncheon featuring Phil "The Thrill" Orlando and Rich "IH8ARNSL" Bernstein
"NYSSA January 9"

As John Lennon might say, "A splendid time was guaranteed for all".

Wednesday, February 19, 2014

Talking Head Time

8 events, 8 cities, 6 weeks.

From the raging bulls in New York to the humorous (but very insightful) comments of a fixed income expert (yes, Matilda, they do have a sense of humor) to the sanguine views of Dr. Doom himself (say what!?), my early 2014 events are in the books and ready to share with all who care.

Today, at 2:15 (eastern), I get to do exactly that on Bloomberg radio's very popular program "Taking Stock with Pimm Fox and Carol Massar". Who knows, I may actually say something of value.

To listen, click here.

Thursday, January 2, 2014

Recent Media Appearances and Upcoming Events

My recent media appearances - "Taking Stock with Pimm Fox and Carol Massar", FT.com's "Authers' Note", and "On The Money" with Steve Pomeranz, CFP - along with my early 2014 upcoming events, featuring the likes of Liz Ann Sonders, Sam Stovall, Phil Orlando, CFA, Don Rissmiller, Glenn Reynolds, CFA, Heidi Richardson, Jeffrey Saut, Dan Clifton, Shane Shepherd, Peter Petas, Rich Bernstein, Joe Kalish, Ed Clissold, Tom Tzitzouris, Matt Orsagh, CFA, Jeffrey Sherman, and a cast of Inside ETFs experts too numerous to mention, are listed on my media blog, Beyond the Sound Bite.

Tuesday, December 3, 2013

You Don't Need A Bubble...

...to end a bull market.

Lots of talk of bubbles these days. In fact, I was interviewed on the subject just a few weeks ago. What seems to be left out of the chit chat about bubbles are the dynamics that go into bubbles (valuation model inputs) and the issue of how markets typically come to an end.

Granted, the popping of bubbles is one way to bear witness to the end of the current liquidity-driven global equity markets bull run. However, another, more likely (and more common) way would be a good, old fashioned garden variety market top. And, in that regard, there are few signs that the end of the party (replete with music and dancing and a punch bowl full of central bank liquidity) is at hand. For when the dominant players in the markets (investment professionals) are highly dependent on relative performance metrics (a/k/a alpha), trailing your peers is one of the best ways to lose clients (and your job, and your house in Greenwich). So, when one is flush with cash, dance and make merry is what you do - confident that one possesses the skills necessary to exit the dance hall just as the music ends and the central bank libations cease to flow.

Now, could such merriment lead to a bubble?

Bubble talk refers to the inputs that go into valuation models - earnings, growth rates, and interest rates - and their relation to price. History is used to reference prior periods when bubbles were formed and what followed when they burst. However, quantifiable as we want them to be, valuation models contain very highly subjective elements. They are tied to factors that reside in the social science worlds of the real and political economies and the financial economy. They are useful in the sense that they provide a zone of vulnerability where, in the past, bad things followed. They are, in many respects, like the psychology of investors in which rubber band-like qualities of investor sentiment can stretch beyond reason - and do so for far longer than one presumes*.

Bubble predictions are not, however, a statement of fact nor are they a justification for the need to explain how only an extraordinary event can disrupt the party underway. (Which is another way of saying "I, the investment professional, cannot possibly get it wrong on something so ordinary as a garden variety market top. It just has to be something unique - like a bubble!")

Investment Strategy Implications

Bubble talk is entertaining, interesting and somewhat informative. But understanding and appreciating the realities of a changed financial marketplace intersecting with the extraordinary economic, political, and monetary times we live in make for a more useful exercise. As for the signs of a market top, they just are not there. Divergences between markets exist but not to the degree that has in the past signaled the end of a trend. And the price and other momentum indicators are equally supportive of the existing trend in place.

That said, if one wishes to indulge in extraordinary items, perhaps a far more productive use of one's time might be the search for and understanding of how Black Swans form (the subject of my upcoming CFA Society San Francisco presentation next Thursday).

*"Markets can remain irrational longer than you can remain solvent."
John Maynard Keynes

Thursday, September 19, 2013

And So It Goes

Since the bull market began in 2009, on three occasions (November 10, 2010, April 29, 2011, and March 30, 2013) I have posted a perspective from one of the voting members of the FOMC, St. Louis Fed President, James Bullard, and his seminal work, "Seven Faces of "The Peril'". In his commentary, Mr. Bullard provides a chart (see accompanying chart to your left) that illustrates quite clearly the underlying fear that drives the Fed toward its super easy (and, seemingly, never ending) monetary ease policy.

While yesterday's surprising decision to postpone the taper focused on the state of the US economy (and, to a degree, the financial markets' recent action), the real driver, I would argue, is the underlying fear that the US could, without a sustained intervention by the central bank, slip into deflationary territory - a place where government intervention has a very limited history of success.

Now, even if one doesn't fully (or, even, partially) buy the argument re the Fed fears of deflation, consider the very fact that the Fed was unwilling to engage in a measly $10 billion per month ($120 billion per year) taper in a $15 trillion economy. What does that say about an economy that has been on governmental intervention support for 5 years and counting?

To help illuminate the Fed's action as it relates to the state of the US economy, perhaps what my good friend, Dr. Vahan Janjigian, CFA, wrote today will help.

Investment Strategy Implications

Many who live inside the Wall Street bubble act and react according to the financial video game they play. Economists and financial theoreticians provide the intellectual cover, the legitimization of the illegitimate belief that the social sciences are more akin to the physical sciences and, therefore, are more science than art. And, in time, when things don't go quite as forecast, the outcome surprises. Should that outcome the next time the surprise occurs (and it will, it always does) turns out to be anything resembling the disaster of 2007-09 (or, more likely, worse), who will answer the question Queen Elizabeth posed at the London School of Economics, "Why did nobody notice it?".

And so it goes.

Thursday, August 22, 2013

Talking Head Alert: Bloomberg Radio today

Today's appearance on "Taking Stock with Pimm Fox and Carol Massar" (4:15 to 4:45 PM eastern) will provide the opportunity to share with listeners what Pimm and I heard at the New York Society of Security Analysts' "Market Forecast" luncheon of August 8th. The event covered a wide range of important topics - economic, financial markets (both equity and fixed income), and currencies - with six excellent experts: Marc Chandler, Don Rissmiller, Alec Young, Tom McManus, Thomas Lee, and Jonathan Mackay.

In today's radio segment two central areas will be explored: What were the points of view expressed? Based on their questions to the panelists, what were the attendees areas of interest?

Discussing the first area is obvious - what did the six experts say and why? The second area, what was on the minds of attendees, is less obvious but no less important as it reveals the mindset of investors (primarily professional investors). While anecdotal on its own, it is insightful when compared with similar such events conducted throughout the US this year.

Having produced and conducted such events since 1998, I can assure you that everyone involved - panelists and attendees - has found the time well spent.

Note: I will also give my take on market related matters, including why Obama will pick Summers as the next Fed chair plus what alpha males, short term market momentum players, and overconfidence have to do with each other.

If spending your time in a productive manner is high on your list, consider tuning in today at 4:15 PM (eastern) via radio, app, or here.

Thursday, August 15, 2013

Homebuilders - Pause That Refreshes or Trend Change?



Curious little item: Associated Press notes that "Confidence among U.S. homebuilders is at its highest level in nearly eight years, fueled by optimism that demand for new homes will drive sales growth into next year." Sounds good. Then why has the homebuilders sector fund, XHB, been faltering of late?

Too early to say whether it's either the pause that refreshes or the beginning of a trend change, but it is always worth noting when price action does not match the story - especially when the price action appears to be in the process of building a top or bottom.





To learn more about Blue Marble Research Advisory services and its integrated approach to investment strategy and decision-making, click here.

Monday, August 5, 2013

NYSSA Market Forecast: Thursday, August 8, 2013

This Thursday, August 8, The New York Society of Security Analysts will conduct its latest "Market Forecast" luncheon. Featured speakers are Tom McManus, Thomas Lee, Don Rissmiller, Alec Young, Marc Chandler, and Jonathan Mackay.

Bloomberg's Pimm Fox will conduct the special interview segment. Yours truly moderates the panel discussion. A spirited discussion and debate regarding the trends and themes impacting today's markets and economy will ensue. Insights will be gained. And actionable ideas will be rendered.

Then again, one could choose not to attend and continue to digest what they already know.

For details and to register, click here.

Tuesday, July 30, 2013

Technical Tuesdays: Curb Your Enthusiasm?

We begin with the following excerpt from Sam Stovall's (Chief Equity Strategist at S&P Cap IQ) latest missive:

"Since WWII, bull markets have averaged four years in duration, mainly because of the treacherous third year. Of the prior 10 bull markets, five declined in price in year three, with three of these resulting in new bear markets."... "Surviving the critical third year has traditionally resulted in a revival of upward momentum. Indeed, of the six bull markets that celebrated their fourth birthday, five (83%) went on to celebrate their fifth birthday, recording an average price increase of 21%."

So, lets do the math.

On the bull's 4th anniversary date of March 9, 2013, the S&P 500 stood at 1551.18. If we add to that the average price increase noted in Sam's commentary, 21%, we get to 1877 next spring. Using a good operating earnings estimate for the twelve months ending March 2014 of $106, stocks will be priced at 17.7 times earnings. At virtually 18 times earnings, the most enthusiastic types will note that the rule of 20 roolz: 20 - inflation rate = appropriate P/E ratio*.

Sounds good. Then there's this from Orcam Financial Group (via Pragmatic Capitalism via Marc Chandler's marctomarket.com).


Given the fact that there is little to no advance signs of a market turn from such data plus the fact that the data seems to be coincident to each other** plus the fact that so much has changed in terms of the very structure of the market that such data is likely highly contaminated, all that one can do is note that the US equity market is at a point where problems ensued.


Investment Strategy Implications

When looking to divine the future for equities, history is a mystery. As Sam is found of noting, it's a guide not gospel. And certainly no substitute for logic and analysis. Reliance on simplistic rules of thumb (like the rule of 20) is fool's gold.

Investors operate in a changed environment yet far too many rely on tools and methodologies better suited for a more simple time. It's like the difference between analyzing an economy that is perceived to be closed when it is anything but.

Accordingly,

Given the interconnected nature of the globalized economy and markets plus the complexity of relationships and financial instruments plus the speed with which a seemingly minor incident can transmit and transmute itself throughout the global network, the rise to valuation normalcy is problematic for anyone who believes that the extraordinary economic and financial times we live in warrant a below average P/E.

Count me in that camp. My enthusiasm is curbed.


*Actually, according to one source, the rule of 20 is more like the rule 19.3, which would be nearly spot on given that inflation tends to run closer to 1% than 2% in the current environment.

**I suppose one could argue that the fall off in NYSE margin debt precedes the drop in equity prices. But given that we are talking about only two episodes, this is hardly a large enough sample to work from.

***

Technical Tuesdays is a service of Blue Marble Research Advisory and illustrates selected elements of market intelligence analysis. Market intelligence analysis - along with fundamental and thematic analyses - form the three-legged stool of the analytical approach employed by Blue Marble Research Advisory. We believe that only by integrating the three disciplines can one effective analyze the complexity of today's globalized economy and markets.

To learn more about Blue Marble Research Advisory services and its integrated approach to investment strategy and decision-making, click here.