The Stock Market
A Shift in Expectations
When discussing the outlook for so-called “risk assets”, i.e., mainly stocks and corporate bonds (particularly low-grade bonds) and their counterparts on the “safe haven” end of the spectrum (such as gold and government bonds with strong ratings), one has to consider different time frames and the indicators applicable to these time frames. Since Donald Trump’s election victory, there have been sizable moves in stocks, gold and treasury bonds, as the election result has strongly boosted certain market expectations.
A Soaring Market
On January 20 2017 Donald Trump will be sworn in as the new president of the United States. On the stock market his victory has triggered a lot of advance cheer already: the Dow Jones Industrial Average rose by a sizable 7.80 percent between the election and the turn of the year.
Some Monday mornings are better than others. Others are worse than some. For one Amazon employee, this past Monday morning was particularly bad.
No doubt, the poor fellow would have been better off he’d called in sick to work. Such a simple decision would have saved him from extreme agony. But, unfortunately, he showed up at Amazon’s Seattle headquarters and put on a public and painful display of madness.
Good-bye cruel world! On this our planet, ignoring air friction, wind and other buoyancy-enhancing obstacles for the sake of this example, someone jumping off a building that is high enough will eventually attain a terminal velocity of 122 miles per hour. The acceleration is 32.2 feet per second², which is why one has to start from an appropriate height (a skydiver in a spread-eagle position will typically reach terminal velocity after about 12 seconds, traversing a distance of 1,483 feet). Jumping without a parachute may provide an especially pronounced adrenaline high, but is generally not advisable; more often than not it will be a one-off experience.
Pre-Election Market Movers – Mr. Comey and the Trio Infernal
Before this Monday, the S&P 500 Index went down nine days in a row. While this was almost unprecedented (or in any case, a very rare event) the decline was quite small overall. The timing of the pullback and the subsequent strong rebound on Monday suggests that Mr. Comey’s letters to Congress regarding the FBI investigation into official emails by Hillary Clinton – which have found their way unto a computer owned by Anthony Weiner (the former husband of Clinton’s right-hand woman Huma Abedin) – were the “trigger” for these moves.
FBI chief Comey and the Trio Infernal: Huma Abedin, Anthony Weiner and Hillary Clinton. Weiner is embroiled in a rather unsavory scandal – allegedly he has inter alia mailed pictures of his unclothed reproductive organs to a minor. The FBI has detected some 650,000 emails on his computer that seem to have come from Ms. Clinton’s private email server, which she in turn used in her official capacity as Secretary of State (her use of this device violated regulations and testified to her lack of sound judgment).
Image credit: Robyn Beck, Don Emmert / AFP / Getty Images
Only Sell Stocks in Recessions?
We were recently made aware of an interview at Bloomberg, in which Tony Dwyer of Cannacord and Brian Wieser of Pivotal Research were quizzed on the recently announced utterly bizarre AT&T – Time Warner merger. We were actually quite surprised that AT&T wanted to buy the giant media turkey. Prior to the offer, TWX still traded 50% below the high it had reached 17 years ago.
Iffy Looking Charts
The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though.
Time for some old-fashioned disciplining… (a. D. 1891)
Photo credit: Littleton View Co.
Earlier this morning the British Pound suddenly found itself on the receiving end of a 6% flash crash during Asian trading hours. Some of the losses have been recouped since then, but that will be of little consolation to anyone who may have been long the GBP overnight.
Photo credit: Time & Life Pictures / Getty Images
The Long Term Outlook for the Asset Bubble
Due to strong internals, John Hussman has given the stock market rally since the February low the benefit of the doubt for a while. Lately he has returned to issuing warnings about the market’s potential to deliver a big negative surprise once it runs out of greater fools. In his weekly market missive published on Monday (entitled “Sizing Up the Bubble” – we highly recommend reading it), he presents inter alia the following eye-popping chart:
John Hussman on Recent Developments
We always look forward to John Hussman’s weekly missive on the markets. Some people say that he is a “permabear”, but we don’t think that is a fair characterization. He is rightly wary of the stock market’s historically extremely high valuation and the loose monetary policy driving the surge in asset prices.
The S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but strengthened noticeably thereafter. The a/d line is just one of many examples. A major reason for this was that market participants reassessed the likely future path of the Fed’s monetary policy – click to enlarge.
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