A World of Pure Imagination
This week I write you from the emergency room on Thanksgiving Day. My wife’s fingertip had an unfortunate tangle with a knife this morning. While it doesn’t appear too serious, it’s bad enough to warrant a check by a doctor in case she needs a stitch or two.
Before I get too far into my thoughts for the week, I’m including a link to a presentation by Grant Williams who spoke at the 2017 Stansbury Conference in Las Vegas last. Grant has held several senior positions at various investments banks and currently is an author and advisor to Vulpes Investment Management in Singapore. In this presentation, he covers the business cycle and market valuations from an entertaining and historical perspective. If you’re a fan of Willy Wonka, I’d encourage you to take 30 minutes to see what he thinks about today’s markets – I don’t think you’ll be disappointed.
I continue to be amazed at how many people are trusting their life savings to the Fed. Investors all over the world now think central banks will prop up stock prices indefinitely, even though central banks have tried to prop up stock prices in every recession since the Great Depression and haven’t been successful. As I’ve said for the past couple years, this is the most dangerous market in history and with each passing day, it gets more dangerous.
The public thinks they have Wall Street figured out – ride the market to the top, then as soon as it starts to turn, bail. This would have worked in the past two bear markets, but it won’t work the next time. Wall Street has changed the game and the public doesn’t realize it.
Next week I’ll have a longer update titled, “A Market Built on Nitroglycerin.” Wall Street has been up to their old tricks by selling overly leveraged assets to unsuspecting buyers, just like they did going into the Great Financial Crisis of 2008-09. Unlike times before, this market is set up to implode over a matter of days, meaning most people won’t be able to get out in time. And if you think Wall Street is immune to their own devices, the last time they leveraged up the system, the entire banking system nearly collapsed. Any Boomer who is invested in the stock market is encouraged to read next week’s report, so they understand just how much risk they are actually taking.
Kim’s all bandaged up and we’re off to meet up with her kids for Thanksgiving. I hope you and your family have a wonderful Thanksgiving!
Video Topic of the Week –
Just the charts this week.
Chart of the Week – All In!
According to the JP Morgan research department equity positioning is nearly 100% across the board, begging the question, who’s left to buy?
Portfolio Shield™ Update
I’ve shelved this for the time being, but it’s still on the list. I’m working on fine-tuning the algorithm as I believe there may be room for a slight improvement.
Instead, I’ve been focusing my efforts on developing a pure momentum strategy. What’s interesting about a pure momentum strategy is that it should be price and security agnostic, meaning it should work on any security and doesn’t rely on price movements to determine when to buy and sell. After working through a few stumbling blocks, I’m excited to tell you that the initial test results are extremely encouraging.
The potential behind such a strategy is huge because a pure momentum strategy should be able to adapt to both rising and falling prices, and adjust between long and short positions. If I am successful, the result could be a fully diversified strategy that adapts to whatever conditions the market throws at it.
Weekly Broad Market / Economy Commentary
On Wednesday, Chinese stock saw their worst day in 17 months as the Shanghai Composite more than 2%. Interest rates in China are rising and with more than $1 trillion of local bonds maturing in the next two years, suddenly the narrative has shifted to, “cash is king.” While it’s hard to say if this selling will persist, the fact remains that higher borrowing costs are bad for profits.
Durable goods orders fell this month despite analysts’ expectations for a positive print. After the back-to-back positive numbers for September and October, which reflected the post-hurricane rebuild, many thought this was a sign of the economy taking off. The negative print for October was totally unexpected. It could be that consumers are waiting for Black Friday sales to buy these big-ticket items and the consumer surveys indicate this year’s Black Friday sales should be higher than last year.
And retailers are hoping sales are strong, as their gullets are full of inventory that they are desperate to move. This is not only evident by the piles of inventory on the shelves, but it’s also validated by the third quarter GDP data of which half was attributed to rising inventories.
The markets nudged higher this week in what was the biggest short squeeze since last year. This market continues to punish anyone who has a contrarian view, even though the data suggests that nearly everyone is invested in stocks.
As the Fed is “tightens” conditions, liquidity appears to be flowing into the United States from Europe who is printing money at breakneck speeds. This continues to remind me of the bubble of the late 1920’s where the Fed was tightening but money kept flowing in from overseas until the market finally broke.
What baffles me the most is that the Fed continues to “juice” the stock market while it’s contracting the money supply. They are supporting asset prices as they choke out those who need money the most. It makes absolutely no sense.
Bonus (31 min):
- M2 Money Stock YoY% vs Recessions
- Commercial & Industrial Loans
- Federal Reserve Balance Sheet
- Bear Market Repossessions
- Fed Balance Sheet Reduction
- Implied Rate in Fed Fund Futures vs Gold Price
- Buyback Backtrack
- Non-GAAP vs GAAP
- Gold – Weekly & Daily
- Commercial Real Estate Prices
- Corporate Debt as % of GDP
- Decline of Research
- Corporate Debt vs Profits
- Mergers & Acquisitions
- Home Sales
- Yield Curve
- ECB Balance Sheet
- Consumer Confidence
- Hedge Fund Leverage
- Durable Goods
- Investor Equity Positioning
- Markit Factory PMI
- Merger Activity
- Consumer Credit as % of Disposable Income
- Buybacks vs Capex
- S&P 500 (SPY) Chart
- 10-Year Treasury Yield (TNX) Support Levels & Price Targets
- Gold Futures (GCZ7) Technical Analysis
- Vaneck Vectors Gold Miners (GDX) Technical Analysis
- Global X Silver Miners (SIL) Technical Analysis
- iShares Telecommunications (IYZ) Chart Analysis
- iShares 7-10 Year Treasury Bond (IEF) Analysis
- PowerShares DB Agriculture (DBA) Analysis
- Dollar Index (DX) Analysis
- S&P 500 vs % of S&P 500 Stocks Above 50-day MA
- S&P 500 vs % of S&P 500 Stocks Above 200-day MA