The 4% GDP headline masks the reality that output is still off 2.46% from a year ago and GDP is only 0.96% higher since the 3rd quarter.Output is obviously being held back because of the quantity and quality of work available. According to the December jobs report, the number of long-term unemployed—meaning without a job … Continue reading The real economic reality
"Buy when most people, including experts, are pessimistic, and sell when they are actively optimistic." and "The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists." -Benjamin … Continue reading A quote to think about
Chess masters know that to win you have to avoid losing. The first thing they do after an opponent makes a move isn't to think about strategy or winning b rather to ask themselves: what's the threat? Avoid stupidity before seeking brilliance.
The Federal Reserve was founded in 1913 in response to perennial liquidity crises — financial emergencies that caused cash to be suddenly unavailable. In addition to being the lender of last resort, its role evolved into managing inflation, and over the last 10 years the focus has been on staving off deflation. Deflation is a … Continue reading What to fear
While stock prices may be a discounting mechanism, disconnects between corporate profits (green) and stock prices can end with a reversion. Based on the previous two, the next reversion could look like many have never seen before.
Investors who are worried that the stock market rally has gone "too far, too fast" and seek a "safe haven" in the bond market may want to think twice. The reason why is that the credit market appears highly precarious. First, with rates at historic lows, even a modest rise in rates will rapidly reduce … Continue reading A bond market update
Longterm inflation expectations should not be sensitive to a sudden move in either oil prices or equity prices as timely monetary policy adjustments from policymakers are supposed to offset those shocks. The main short-term leading indicator of inflation is labor unit costs, which is used as an indicator of inflationary pressure on producers. Interestingly, after … Continue reading There should be no concern about inflation
The starting valuation matters! When P/E starts at relatively lower levels, higher returns follow—paying less yields more. When the market P/E starts at higher levels, subsequent returns are lower. This graphical analysis presets the compounded returns that follow over the subsequent ten years based upon the starting P/E ratio.
The June wave top in the Russell 3000 has been slowly unwinding lower. The duration and aggregate direction of the waves since June illustrates this bearish character. Combined with historically high sentiment across all investor typee paints an extremely bearish posture for stocks.
"Great Expectations" may be a fitting description of the mindset of many stock market investors as they raise their glass to what is being called the up coming Roaring Twenties. And novice speculators are on board. This chart from SentimenTrader shows among the smallest of traders, 54% of volume flowed into buying call options over … Continue reading How realistic are these … great expectations?