From the December 31, 2015 HRA Journal: Issue 244
You heard it from Janet Yellen. “Economic expansions (and by extension bull markets) don’t die of old age.” That’s true. But they do die from excess, policy mistakes and Wall St Stoopid.
Seven years of zero interest rates have created plenty of capital misallocation, mal-investment and yield chasing. We’ve seen some minor debacles in the high yield space this month. Nothing earth shattering but certainly disquieting. Big problems often start small and go unnoticed until the tsunami is on the horizon. Keep an eye on bonds. The credit market funds a large percentage of the buying underpinned the bull market. We’ve got a problem if it stops.
From the December 2, 2015 HRA Journal: Issue 243
Over to you, Draghi and Yellen.
This month, like many other months recently it’s the intentions of central bankers that are dominating the markets. It’s widely expected that the ECB and US Fed will drift even further apart in their basic policy stances this month. I’m pretty sure that view will turn out to be correct though as always the devil will be in the details.
Increasing certainty about upcoming policy moves has traders increasingly certain about how different markets will move and they are placing bets accordingly. Traders in New York are expecting Santa to deliver new all-time highs. He may grant that wish on momentum alone but if we get many more sub-par economic readings the jolly old elf may decide to break out the coal lumps to stuff stockings with.
From the November 10, 2015 HRA Journal: Issue 242
It’s all good. Just ask Janet Yellen or any hawkish Federal Reserve board member. Indeed, there have been some better readings on the US economy lately but things are far from outstanding.
Plenty of equity traders suddenly expect new highs on the major markets any day now. The bond market is pricing in 70%+ probability of a December rate hike. This time around markets are not jittery because the Fed has assured us offshore problems won’t touch the US. Let’s hope they are more right about that than they were four short months ago.
From the October 21, 2015 HRA Journal: Issue 241
Since the last issue the “optimistic scenario” has been the clear winner. Traders continue to expect the Fed to hold off. That has been enough to keep NY trending higher though the trajectory is flattening out. Economic readings haven’t improved. It will take plenty of upside surprises though earning season to keep the trend alive.
The trend has been more evident in Europe, Japan and China. All released weak readings and all have traders that expect their respective central bankers to refill the punchbowl. Let’s hope they do.
From the October 4, 2015 HRA Journal: Issue 240
Oy, that Coffin! More indecision? ‘Fraid so. I still see a bear market confirmed before year end as the likely scenario. But, as of a couple of days ago there is a new storyline in town. This new one involves the Fed throwing up its hands and giving up on the idea of raising interest rates. That’s not what Fed governors are saying but it’s what an increasing number of traders believe.
I don’t believe the new storyline yet myself and I don’t expect the Fed to admit to it if they do. Unfortunately, the Fed now has less credibility than a Baptist preacher in a whorehouse. They brought that on themselves by wimping out repeatedly in the past two years so I’m not sympathetic. If the trend in earnings and GDP I discussed in the main editorial comes to pass the Fed’s hand will be stayed no matter what they want.
From the September 15, 2015 HRA Journal: Issue 238-239
I did a lot of agonizing about this month’s main editorial and, truth to tell, I’m still partially on the fence about the market’s major direction. I think the odds of a drop of bear market (20% plus) proportions is very high right now, I’m just not sure how fast it will happen.
If the US Fed really fumbles at the next meeting for instance hiking rates without clearly enunciating it won’t do it again for quite a while we could see the next down leg in days. If the Fed stands pat and does a great job of calming nerves that may put off further drops but I think the relief will be fairly temporary. I see no reason to think we won’t see another quarter of lower profits and perhaps lower revenues as we move through Q3 reporting next month. Barring some sort of valuation voodoo I don’t think the market can hold up to three of those in a row.
From the August 17, 2015 HRA Journal: Issue 237
Well, that wasn’t fun. Gold plunged through $1140 and toyed with $1080 for three weeks before making a small comeback. You can make a case the drop and the reaction to it being the “capitulation event” we’ve been waiting for but I’m not totally sold on that. I still want to see that first Fed rate hike next month which I think is more likely to mark a bottom though the longer gold holds above $1100 the stronger the case for the last plunge being “it”.
China provided the black swan with its Yuan depreciation. How far that goes remains to be seen. Beijing is managing the Shanghai market “well” so maybe it has the same luck with the currency.
From the July 16, 2015 HRA Journal: Issue 236
Right now it looks like Greece will be resolved though I think it’s destined for a fourth bailout which won’t be completed. Hope I’m wrong about that but the debt mountain is getting to be un-scalable and the damage to its banking system worsens hourly.
Chinese markets look like they will get a reprieve either though volatility is so high in that market its dangerous to read much into one and two day moves. Interventions like this don’t work most of the time. Assuming this one won’t either is simply betting the odds.
From the June 28, 2015 HRA Journal: Issue 235
As I’m sure most of you figured out long ago I write this sidebar last. Quite a bit has happened in the past 24 hours only some of which is dealt with in the issue.
Greece is obviously a big deal in Greece but I still think the damage is containable and largely contained already. I don’t expect markets to be happy if Grexit happens in the next week or two but I’m not convinced its crash material either. Indeed, unless some markets trade substantially worse in coming days it should be clear even to the Syzira caucus that they badly overplayed their hand. The simple truth is that the Greek economy is not that important, something that should have been factored into the game theory a bit better.
From the June 9, 2015 HRA Journal: Issue 234
Summer’s here. That global warming thing sucks for most of the planet but its done wonders for the weather in the Pacific Northwest and Canada’s west coast. You can see the impact of longer sunnier days already in the local markets which are seeing lighter volumes and in calls to brokers during the trading day. The background noise sounds suspiciously like a patio full of drinkers rather than an office. Probably just a line problem.
We all expect summers to be slow and boring in the markets. So much so that it’s usually a self-fulfilling prophesy. That doesn’t mean we should completely ignore the markets though. Summer often gives us a foretaste of the autumn. If we see even a little positive action during the doldrums we’re usually set up for a better fall market.
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