The Stock Market
Time to Be in Stocks?
POITOU, France – It is wet, but not cold, in this area of France this morning. Rain splashes on the copper flashing. The windowpanes fog over. We have made some tea and settled in to our library for a long day’s study.
One of the pleasures of life is having a good place to work. The library is an old octagonal building, with a cement floor and brick walls, that had been used for laundry. We replaced the windows, put in a gas fireplace, and lined the walls with bookshelves.
Bill’s ancestor Dr. Paracelsus Bonner in his study
Engraving via William Blades
Magical Money System
POITOU, France – U.S. stocks still going up. What does Mr. Market know that we don’t know? Plenty. He knows everything. Millions of facts. Millions of opinions. Millions of guesses. A damned know-it-all. Mr. Market is always right; there is no higher authority except God Himself So, if Mr. Market says stocks should go up, who are we to argue?
An Impressive Rebound, but Hollow Inside
In his recent weekly market update, John Hussman once again discusses his main bearish argument, namely the combination of market overvaluation and deteriorating internals. He rightly (in our opinion) regards the latter as a signal indicating a shift in risk appetites. Here are two quotes from the article summarizing the essential points:
“Valuations are the primary driver of long-term returns, and the risk-preferences of investors — as conveyed by the uniformity or divergence of market action across a broad range of individual stocks, industries, sectors and security types (including credit) — drive returns over shorter portions of the market cycle.”
“The combination of extreme valuations on historically reliable measures, the deterioration of market internals following an extended period of overvalued, overbought, overbullish conditions, and the weakening of leading economic measures, particularly on measures of new orders and order backlogs, has clear precedents historically, and those precedents are uniformly bad.”
Image via aufinia.com
In light of an unbroken string of atrocious manufacturing survey data, we have decided to update a few of the charts we use to assess the economy. For a discussion of the details of the most recent manufacturing surveys see Mish (Empire State and Philadelphia) and Zerohedge (Empire State and Philadelphia). We would note to these data that the strong decline in new orders is especially noteworthy.
Photo credit: ard.de
SKEW Goes Pear-Shaped
Back in 1998, at the height of the Russian crisis, the CBOE SKEW Index reached its all time high of 146.88. Previously very high values were seen on the eve of the 1990 recession, and in March 2006 it spiked again when sudden worries about the housing bubble surfaced.
“There are no black swans” they said …
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