Weekly Update

When Yield Spreads Get Crazy

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Published August 11, 2017

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Yield spreads provide a view into the risk appetite of market participants. If the spread between low risk and high risk bonds is large, investors are concerned and want to receive more compensation for taking on the added risk. As investors become more comfortable with the market and begin to view it as increasingly benign, they require less compensation. In times of extreme market complacency, the relationships between risk and return appear to almost break down. And so it is with European high yield (aka “junk”) bonds today. (more…)

Weekly Update

Long-term Models and Metrics Can Lead to Misreading the Market

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Published August 4, 2017

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There are a number of folks talking about how overvalued this stock market is. Many of them refer to the metrics, indicators, and models discussed below. Read through this analysis from Jill Mislinski and we will return for some perspective at the end.

“Here is a summary of the four market valuation indicators we update on a monthly basis.
• The Crestmont Research P/E Ratio
• The cyclical P/E ratio using the trailing 10-year earnings as the divisor
• The Q Ratio, which is the total price of the market divided by its replacement cost
• The relationship of the S&P Composite price to a regression trendline

(more…)

Weekly Update

The Problem with Investing in Stocks

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Published July 28, 2017

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We found Josh Brown’s thoughts on the current market interesting. It could be extrapolated to be a comment on investing much of the time.

The negatives:

The US stock market is now selling for close to a record high valuation. Volatility for the S&P 500 is currently registering record low readings. Brilliant hedge fund managers like David Einhorn are ringing the alarm bells over the worship of growth stocks without earnings. Warren Buffett’s Berkshire Hathaway is sitting on a $90 billion cash hoard, struggling to find reasonably valued assets to invest it in. Bonds are no bargain given today’s yields vs inflation, and that’s assuming rates are just steady – if they rise more quickly than expected, there will be some pain. (more…)

Weekly Update

Calm Gives Way to Signal “Storm”

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Published July 21, 2017

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After an extraordinary seven months sitting in Buy, our Turbo Model finally succumbed to a pullback in the Nasdaq and issued a Sell signal at the end of June. That kicked off a string of signals, six in all, that was essentially breakeven with a -0.4% return. This came after a near +20% run from the seven-month Buy signal of early December. (more…)

Weekly Update

Tis the Season

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Published July 14, 2017

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As many of our subscribers are interested in various stock market strategies, and timing strategies more specifically, we thought you might enjoy this article from Dana Lyons.

“Seasonality in stock investing is a tricky thing. In one way, some of the most profitable and reliable timing systems are those which depend only upon seasonality. On the other hand, emotionally and rationally, they are extraordinarily difficult to implement, at least exclusively. (more…)

Weekly Update

An Overview of Oil

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Published July 7, 2017

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Since hitting $55 per barrel at the beginning of the year oil prices have steadily declined to a price around $45 now. This tumble below $50 marks a point where some newer wells might be unprofitable. Nevertheless, U.S. supply of oil has been surging higher for years now upsetting the decades-long dominance of OPEC oil nations and remaking the global oil market. (more…)

Weekly Update

This Time IS Different

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Published June 30, 2017

timingcube_cartoon063017We found this recent post from Ben Carlson to be of interest:

Sir John Templeton wrote “16 Rules for Investment Success” in 1993. The following is by far the most quoted passage:

The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.

“This time is different” is something of a sacrilegious phrase in the investment industry. Every time markets, corporate fundamentals or long-followed economic ratios enter above-average territory there are sure to be pundits or investors warning about complacency and imminent mean reversion. Anyone who claims it’s different this time is mocked with disdain for daring to question long-term financial relationships. (more…)

Weekly Update

The Seduction of Pessimism

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Published June 23, 2017

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We strive in our weekly blog posts to present all the major prevailing views on markets. Nevertheless, we have marveled over the years about the staying power of the doom-and-gloom crowd. How is it, in the midst of a long running bull market that the doom and gloom crowd has any remaining followers at all? (more…)

Weekly Update

A Technical Reflection on the QQQ

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Published June 16, 2017

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This week, for the first time this year, the Nasdaq 100 (symbol: QQQ) said “hello!” to its 50-day moving average. The 50-day moving average is a very common reference point for investors and machines programmed to trade. In Chart 1 below, the 50-day moving average is the blue upward sloping line. (more…)

Weekly Update

Volatility at Decade Lows

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Published June 9, 2017

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A couple of months ago we posted on our blog an article titled “Risk Rises” which talked about the VIX volatility index shooting up almost +50% over a period of a few days. At the time it seemed this sharp jump in market volatility might presage a shift in market tone. (more…)