I have a macro-model that I use to gauge where the market is in relation to where is should be. One of the first steps in the process of understanding where we “should” be is to look at a long-term chart of the S&P 500. I was a bit flabbergasted when I recently took a peek at this chart. The chart is pictured below, tell me if you feel the same way I did.
Read the full report: Market Outlook 11/24/2014
I’m sure everyone reading this report is familiar with the old market saying, “Don’t fight the Fed.” It simply means that whatever the Fed wants to make happen in the markets, it will. It raises rates when it wants to slow the economy down and, if you believe the saying, the economy then slows down. Of course, the inverse of that is true as well. If the Fed wants to spark the economy, it can. In fact, we’ve been living through a Fed-induced boom since the financial debacle of 2008.
Read the full report: Don’t Fight The Fed
As I noted in my last research report, the stock market has appreciated significantly over the last 5 years. In fact, the S&P 500 is up over 100% since 2009 and the biggest year of this run was the 29.6% appreciation that occurred in 2013. According to my work, we have been in a secular Bull Market since 2009. Obviously, these gains solidify that claim that this is, indeed, a long-term Bull Market. However studying past Bull Markets shows that during times of long-term upwards moves the market does experience short-term pullbacks.
Since all of my client’s goals center around long-term asset growth and capital preservation, I must remain ever wary of the next Bear Market; even if it is short-term in nature. With this in mind, I’ve gone through every market cycle since 1871 and analyzed every Bull Market pull back of 10% or more in an effort to identify the characteristics that have set the table for those pullbacks.
My hope is that by knowing the market conditions that led to previous pullbacks, we can stay a step ahead of this market. I view this as hunting down these Bear Markets and being prepped and ready before they can hurt us.
Read the full report: A Bear Hunt
Over the last 5 years, we’ve seen an incredible rise in the value of stock market assets. Below is a table showing the year by year returns of the S&P 500.
2013………25.62% (through 11/18/2013)
If you compound the returns listed above, you get a 116.50% return!!!
Read the full report: Where Are We Now
I put out a report a few months ago entitled “Reflexivity.” I know most people don’t know what the heck that terms means, so here is a brief description of what I mean when I use that term.
It is a term that I first ran across while reading George Soros’ book “The Alchemy of Finance.” It is essentially a human behavioral phenomena where by people’s actions are influenced by their beliefs and their actions build off of each other to influence the markets. It has the impact of extending trends and taking things to extremes within markets. The results of Reflexive Markets could be seen at the end of the Tech Boom of the 1990s and the market’s collapse at the end of 2008.
Read the full report: Path to Reflexivity
A client actually sent a cartoon to me and I thought it was so appropriate, I had to send it out to all clients. You see, the actions depicted in the cartoon precisely identified “The Rescue Plan” instituted by the Feds. And it was at that time, that I realized how important the banks are to our economy.
Now, 4 years later, the banks have reported their largest profits EVER!! There is no question that the path to these profits was paved by bailouts, low interest rates, and extraordinarily accommodative monetary policy. Furthermore, I believe the actions taken by the Feds over the last several years were solely aimed at savings the banks. And now that the banks are saved, as evidenced by the massive profits and rising real estate prices (the main collateral for bank assets), the Feds will begin to “normalize” the business operating environment.
I believe this process of normalization will take the markets to amazing new highs.
Read the full report: Growth Spurt
The other day, I’m having a conversation with a group of savvy and active investors and the topic of “What are you buying now?” comes up. I mentioned I liked insurance companies. It was then brought up from our past conversations that I bought shares of a specific life insurance company less than a year ago that had appreciated over 30%. A few days later I got an email from one of the gentlemen that was in the aforementioned conversation. In that email he said, “Yeah, that thing might really begin to take off when they start buying back stock.”
Frankly, I think he was spot on and absolutely correct regarding this statement. However, I’d never considered that. I just thought the stock was really cheap when I began buying it. Nevertheless, right then and there it hits me like a brick…
Read the full report: Reflexivity
Given that our current market has appreciated over 100% from the lows it made in early 2009, I wanted to reach out to clients to discuss the history of previous Bull Markets and how historical precedent might impact our current market.
- After a brief introduction, I will offer some background information on previous Bull Markets.
- Then our current market will be discussed.
- Finally, I will offer some ideas on potential future market movements.
Read the full report: Understanding a Bull Market
Over the past 8 years, we’ve seen the market go through many phases and in our newsletters and research reports we’ve named these cycles and market movements. Recently we’ve seen the “rebalancing” and the “consolidation” to name a few. Right now, however, we are in the beginning of a new cycle that I’ll dub “normalization.”
This normalization process is occurring now and will most likely un-do the extreme pricing irregularities that have been forced upon the market through efforts to rescue the world’s economies from the dire situations they faced as part of the 2008 crisis. Some of these irregularities came about from overt and purposeful efforts, while some arose as unintended consequences relative to those actions.
Like all long-term secular trends, this process of normalization will not be an overnight knee-jerk reaction. Rather, little by little, day by day, quarter by quarter, I expect to see the following irregularities begin to reverse themselves.
Read the full report: Normalization
My investment process is a Top-Down meets Bottom-Up style. With a focus on Behavioral Finance being used on the Top-Down portion of the analysis and intense cash flow analysis supporting the Bottom-Up side of the equation. In my research reports, a lot of my published pieces are centered around the Top-Down aspects of the market. This is intentional. I believe that understanding the market’s general direction can have massive implications on the overall returns of portfolios. Additionally, the macro-economic environment has been in such an historically interesting position for the last 5+ years, that a constant eye needed to be placed on it.
However, my work now suggests that we are entrenched in a Secular Bull Market. And, yes, I’ve been writing about that for quite some time. One of the main twists that my work has unveiled regarding Secular Bull Markets is the recurring Cyclical Bear Markets that occur within these longer-term cycles. Savvy investors can use these pull backs to enhance their long-term returns.
It is with this mindset that I am writing this report. That is, what are some areas that savvy investors should be keeping an eye on in regards to potential placement of investment dollars during our current market cycle.
Please click on the link below for the report.