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Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 46 years of investment... More
My company:
Strategic Stock Investments
My blog:
Investing for Survival
  • The Morning Call---You Mean QE Leads To Economic Stagnation?

    The Market

    Technical

    The indices (DJIA 17840, S&P 2085) followed Wednesday's decline with another stout selloff. The S&P remained above its 100 day moving average but below its prior high. The Dow closed right on its 100 day moving average and well below its prior high. So the trend of lower highs persist in both of the Averages.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17072-19869, 2001-2982), intermediate term (17213-22339, 1805-2578 and long term (5369-18873, 797-2129).

    Volume rose; breadth was terrible. The VIX lifted another 9% on top of Wednesday's up 8%, finishing back above its 100 day moving average and within short and intermediate term trading ranges. Despite a couple lousy Market days, nothing in the VIX right now suggests anything ominous on the downside for stocks.

    https://www.bespokepremium.com/think-big-blog/breadth-turns-negative/

    The long Treasury recovered from a couple of rough down days, ending above its 100 day moving average and the lower boundary of its short term trading range. While avoiding, at least temporarily, more damage to the downside, TLT is developing a very short term downtrend. So what stability it had established over the past couple of weeks has been dissipated. I remain cautious and concerned about the potential that its recent move could be signaling a major change in the underlying fundamentals. As I noted yesterday, I have no conclusions, just worries.

    GLD was down again, closing below its 100 day moving average and continuing to build a head and shoulders formation.

    Bottom line: the trend of lower highs continues. However, stocks are getting oversold, so no immediate reason to get beared up. It may be nothing more than a reflection of the Markets acting on the poor short term risk/reward equation which I have noted several times recently. Longer term, the momentum remains to the upside and will continue at least until the lower boundaries of the indices short term uptrends (17072, 2001) are successfully challenged.

    The TLT chart is again in a state of flux, though yesterday's rally offered hope that the Treasury could be trying again to establish some price stability. We need more of that before getting too comfortable.

    Fundamental

    Headlines

    Yesterday's US economic news was mixed: weekly jobless claims fell more than expected but March personal income and spending were less than anticipated. The more important being the latter since it is primary indicator. If the week ended at Thursday's close, this would be the thirteenth negative data week out of the last fourteen. There are four big numbers that will be reported this morning but I will be on the road by then. So I will make the final tally Monday morning.

    Update on big four economic indicators (medium):

    http://www.advisorperspectives.com/dshort/updates/Big-Four-Economic-Indicators.php

    Atlanta Fed just released its forecast for second quarter GDP, drumroll please, at +0.9%.

    http://www.zerohedge.com/news/2015-04-30/scariest-spreadsheet-fed-possession-just-revealed-just-scary-gdp-number-q2

    Oversea, the news was no better.

    (1) the Bank of Japan voted to maintain QE but failed to meet expectations of an even greater commitment [oh, boo whoo]; Russia's central bank lowered key interest rates

    (2) April inflation in the EU was reported flat versus the March report of -0.1%. Some investors are pointing at this a sign of inflation; but I think that is a bit of stretch, at least for the moment,

    (3) Moody's cut Greece's credit rating, again. Meanwhile, the government scrambled to make May pension payments; not exactly confidence building. In addition, it began meetings with EU officials in hopes of having a preliminary deal by May 3rd. Monday should be fun.

    ***overnight, April Chinese PMI was unchanged while the UK number was well below expectations; Japanese March inflation was 0.2%.

    Nothing illustrates the fragile, schizophrenic mood of investors than the above: (1) the perpetrator of the greatest expansion of a central bank balance sheet in history stays the course but doesn't increase it to even more ridiculous heights and that prompts whiney butt complaints, (2) inflation in Europe is flat [i.e. 0], but that generates worries that inflation is surely on the way.

    Bottom line: US economic news remains lousy; QE remains the policy of choice among the central banksters; and investors maybe, just maybe, starting to realize that (1) those two are somehow related, i.e. that QE, wherever it has been implemented, has done nothing for the respective economies and, indeed, have made things worse and (2) all that ecstasy created by QE and priced into assets [risk] may have been a mistake. When, as and if that happens, the mean reversion of asset [risk] pricing will begin in earnest.

    I can't emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

    Bear in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.

    Thoughts on Investing

    There is no reliable way to invest in an environment of easy money. I've worked in a wide number of environments and studied many approaches that I don't use, and I can tell you one thing: there is no approach that will give you easy money.

    The easy money promoters make money off of subscription revenue. They are not investing alongside you, as I do with my clients. What I own, they own. 80%+ of my liquid assets are invested in my strategies, and most of the rest is in cash. Our interests are aligned. This is like not true of those that suggest easy money strategies.

    When you see books suggesting that you can flip houses, avoid them. Few make money off that regularly. If that were true, someone would form a REIT to do it, and do it far better than you could.

    The same applies to books offering a simple trading strategy. If that worked, there would be a lot of stupid people losing money. Wait, there are a lot of stupid people losing money, at least on a relative basis. But that doesn't mean that particular simple trading strategy works.

    Wherever it appears the lure of "easy money" brings out the worst in people economically. The love of money is a root of all kinds of evil. (1Tim 6:10a) Organically, value grows bit-by-bit, but often prices move in a more volatile fashion. Try to win by buying stocks that grow value. Winning from speculation is a crapshoot. Avoid it, the odds are against you.

    Imagine for a moment that we did not have financial markets. Who would do the best? Those that compounded their economic activities the best - those who were the most productive. The same is true for us today. Focus on companies that are productive, growing organically. That is almost always a good road to profits.

    News on Stocks in Our Portfolios

    V.F. EPS and revenue in-line

    · V.F. (NYSE:VFC): Q1 EPS of $0.67 in-line.

    · Revenue of $2.84B (+2.2% Y/Y) in-line.

    Economics

    This Week's Data

    The April Chicago PMI was reported at 52.3 versus expectations of 50.0.

    Other

    The lower long term economic growth rate (short):

    http://gavekal.blogspot.com/2015/04/the-step-down-in-long-term-us-growth.html

    The real financial crisis that is looming (medium and a must read):

    http://streettalklive.com/index.php/blog.html?id=2704

    More on student loans (medium):

    http://www.zerohedge.com/news/2015-04-30/one-more-reason-why-student-debt-bubble-about-get-lot-larger

    Politics

    Domestic

    International War Against Radical Islam

    The Iranian Foreign Minister speaks at New York University (medium)

    http://www.powerlineblog.com/archives/2015/04/zetetic-with-zarif.php

    Meanwhile, tensions escalate (short):

    http://www.zerohedge.com/news/2015-04-30/inching-toward-conflict-us-navy-escort-cargo-ships-persian-gulf-iran-refuses-back-do

    May 01 8:56 AM | Link | Comment!
  • The Morning Call---Bad Economic News And Stocks Are Down?????

    The Market

    Technical

    The indices (DJIA 18035, S&P 2106) were off yesterday---despite some lousy economic numbers which usually have investors all giddy about more easy money. The S&P remained above its 100 day moving average but traded back below its prior high for the second time---keeping the trend to lower highs intact. The Dow continued to trade above its 100 day moving average and below its prior high.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17066-19863, 1999-2980), intermediate term (17193-22319, 1805-2578 and long term (5369-18873, 797-2129).

    Volume was down; breadth deteriorated. The VIX jumped 8%, finishing below its 100 day moving average and within short and intermediate term trading ranges. It remains a short distance away from the lower boundaries of both its short and long term trading ranges. The latter should provide strong support. For that reason, I continue to think that the VIX remains a reasonably priced hedge.

    The value of margin debt as a stock market indicator (short):

    http://www.bloombergview.com/articles/2015-04-29/don-t-count-on-margin-debt-as-a-crash-indicator

    Traderfeed looks at yesterday's pin action (short):

    http://traderfeed.blogspot.com/2015/04/three-questions-crucial-to.html

    Stock Trader's Almanac on sentiment (short):

    http://jeffhirsch.tumblr.com/post/117766553028/is-market-sentiment-finally-forewarning-a

    The long Treasury got whacked hard again---like stocks, somewhat surprising in the face of poor economic data and a noncommittal Fed statement. It ended below its 100 day moving average, the lower boundary of the very short term trading range---negating that trend and right on the lower boundary of its short term trading range.

    It is now only a point and a half from the lower boundary of its intermediate term uptrend. If that trend is broken, aside from doing some serious technical damage to the TLT chart, it also opens questions regarding the fundamentals behind such a move.

    At first blush, it appears that the poor GDP number (suggesting the US economy may not be the best economy in a sloppy world) pushed the dollar and US Treasuries down. Of course, if the US economy is slipping, rates should decline especially if the Fed remains easy.

    Another explanation is that the bond guys think that the Fed may tighten sooner than later. That doesn't fit yesterday's FOMC narrative but does reflect the opinion voiced in the Fed mouthpiece Hilsenrath's article (see below).

    Or it could mean that investors have had enough of QE, they see the end game and don't like it, and are no longer willing to hold low yielding sovereign debt.

    Or it could mean that fears of inflation are being rekindled; although gold's performance doesn't support that notion. On the other hand, oil does.

    Or more sellers than buyers (short):

    http://www.zerohedge.com/news/2015-04-30/what-wall-street-thinks-caused-bund-rout

    Two points here: (1) the TLT chart has not yet broken down; so all of the above is just speculation, (2) but IF the interest rate charts turn negative, it may well be a signal that something is changing in the economic outlook. I am just trying to anticipate what force may be accounting for this. At the moment, I have no clue what it is (if indeed there is anything); but if I am paying attention, then I hopefully catch it early on.

    http://www.advisorperspectives.com/commentaries/20150429-gavekal-capital-the-smart-money-is-getting-long-treasury-bonds-again

    GLD returned to its old ways (down), closing back below its 100 day moving average and continuing to build a head and shoulders formation.

    Bottom line: the bull/bear battle continues around the trend line forming by a string of lower highs. While yesterday favored the bears, I count that for little. What is needed is strong follow through in either direction before we can make any judgment about short term price movement. As you know, I believe that the short term risk/reward (as defined by the upper boundaries of the Averages long term uptrend and the lower boundaries of their short term uptrends) suggests lower prices. Longer term, the momentum remains to the upside.

    The TLT chart is getting sloppy and if it continues, suggests the economy is not weakening and/or the Fed is about to tighten and/or the bond guys have had enough of the Fed's QE routine.

    Fundamental

    Headlines

    No relief for the weary. Yesterday, mortgage applications were reported down, purchase applications flat; but the real downer was first quarter GDP which grew considerably less than anticipated. This was hardly news to me; but investors didn't seem to care for the number which is surprising given their predilection for indications of more Fed easing. In any case, it reaffirms our forecast of an economy growing even slower than our original outlook with the danger of slipping into recession.

    GDP per capita (medium):

    http://www.advisorperspectives.com/dshort/updates/Real-GDP-Per-Capita.php

    In addition as everyone in the investing universe knows, yesterday ended the latest FOMC meeting. In the trailing statement, the Fed (1) removed all calendar references regarding the decision to raise interest rates, (2) stated that economic growth 'slowed' versus 'moderated' in its prior statement, and (3) attributed that to 'transitory' factors [weather, the dollar]. In short, it appears to have no idea when, as or if it will raise rates. And if I am correct about a permanent versus 'transitory' slowdown, it most likely won't raise rates at all.

    http://www.zerohedge.com/news/2015-04-29/not-patient-fed-blames-snow-weakness-removes-calendar-guidance

    On the other hand, Fed whisperer Hilsenrath says the Fed isn't worried and rate hikes are on the way (medium):

    http://www.zerohedge.com/news/2015-04-29/hawkish-hilsenrath-confirms-fed-not-worried-about-q1-growth-rate-hikes-coming

    Let me repeat a couple of my opinions: (1) the economy is slowing as a direct result of the effects of QE, (2) hence, ending QE [easy money]/raising rates will likely have little impact on the economy, (3) however, because QE's primary result has been to drive asset prices higher, then any reversal would have a greater consequence on asset prices than the economy.

    So you might ask, if QE doesn't end, will asset prices continue to rise? Here are a couple of reasons why that might not happen: (1) in my opinion is that unlike the government, corporations and individuals have finite capacity to borrow whether set internally by their own discipline or externally by their creditors. So matter no how cheap or easy money is or continues to be, when those corporations/individuals reach their finite capacity, there will still be no corporate or individual borrowers---which is another way of saying that the demand created by spending the borrowed money falls into the toilet, the r word. In short, assets may likely continue to rise until investors realize that corporations and individuals have maxed out the ability to borrow against future income; demand then craters and along with it, the economy [read corporate profits]. I have a problem believing investors will continue to push stock prices higher in the face of recession and declining corporate earnings.

    (2) another angle of this answer is that by keeping rates so low and the supply of money high, the Fed has created conditions where anyone can borrow money (anecdotally, I had a conversation this week with an acquaintance with a so so personal balance sheet who had just financed a B++ apartment house with no recourse) and in doing so has minimized the risk/price of failure. On a global scale, the world's central banks have done the same thing with sovereign debt---there are huge chunks of which investors have to pay the sovereign to take their money. In other words, investors are saying that there is less risk holding a sovereign debt than cash. Bear in mind, a portion of Spain's debt is priced at negative interest rates. Again, I have a problem believing that investors will price risk at zero for the rest of history.

    I have no clue how all this gets resolved. I do know that risk has been mispriced but it has not gone away.

    Oversea, the news was no better.

    (1) the central banks of Thailand and Sweden made additional monetary easing moves [see above],

    ***overnight, the Bank of Japan voted to maintain QE but failed to meet expectations of an even greater commitment; Russia's central bank lowered key interest rates.

    (2) it was reported that lending by EU banks to companies and households rose for the first time in three years [see above],

    (3) today Greece will present a [new and improved] draft for fiscal reforms mandated by the troika.

    The latest from Greece (medium):

    http://www.zerohedge.com/news/2015-04-29/greek-deposits-now-lowest-2005-one-third-bank-assets-now-ecb-funded

    Coming defaults in Greece (medium):

    http://www.nakedcapitalism.com/2015/04/coming-defaults-greece.html

    ***overnight, Moody's cut Greece's credit rating, again; Greece scrambled to make pension payment; and today, the government is meeting with EU officials in hopes of having a preliminary deal by May 3rd.

    ***overnight, April inflation in the EU was flat versus the March report of -0.1%;

    Bottom line: the economic news was not great (again), but Markets failed to get jiggy with it. A slowing or declining economy (ies) didn't conjure QE sugarplums in investors' heads. Meanwhile, the global central banks continue merrily down the path of greater monetary ease, creating risk then mispricing it. I have to wonder is yesterday's pin action was one off or if investors are starting to doubt the notion of QEInfinity. We will know soon enough.

    The Treasury market pin action (discussed above) may be an early warning or it may be nothing. I will be watching just in case. In the meantime, I feel very comfortable with the cash in our Portfolios.

    I can't emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

    Bear in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.

    Company Highlight

    The 3M Company (formerly Minnesota Mining and Manufacturing) is a broadly diversified technology and manufacturer of great brands in industrial, health care, consumer, safety and graphics and electronics and energy (50,000 products sold in over 70 countries). The company earns over a 20%+ return of equity and has generated profit growth of 7-10% over the past 10 years. While dividends have not kept pace as the company reinvested cash flow in new businesses, the dividend payout ratio should increase in the next several years. The pillars of its business plan are:

    (1) invest in strengthening and streamlining its supply chain,

    (2) increase its brand building marketing focus on high growth overseas markets, using acquired local or regional brands where it makes sense,

    (3) raise its investment in R&D to advance the 3M brands,

    Negatives:

    (1) its large international business exposes it to currency fluctuation risks,

    (2) its businesses are highly competitive,

    (3) success depends on new product acceptance.

    MMM is rated A++ by Value Line, carries a 24% debt to equity ratio and its stock yields 2.6%

    Statistical Summary

    Stock Dividend Payout # Increases

    Yield Growth Rate Ratio Since 2005

    MMM 2.6% 11% 49% 10

    Ind Ave *

    Debt/ EPS Down Net Value Line

    Equity ROE Since 2005 Margin Rating

    MMM 24% 30% 2 16% A++

    Ind Ave*

    *the Diversified Company Industry operates in so many varied products and services, comparable numbers would be of little analytical value.

    Chart

    Note: 3M stock made great progress off its March 2009 low, quickly surpassing the downtrend off its October 2007 high (straight red line) and the November 2008 trading high (green line). MMM is in uptrends long term (blue lines) and intermediate term (purple lines). The wiggly red line is the 100 day moving average. The Dividend Growth and High Yield Portfolios own full positions in 3M. The upper boundary of its Buy Value Range is $88; the lower boundary of its Sell Half Range is $228.

    (click to enlarge)

    http://finance.yahoo.com/q?s=MMM

    4/15

    Investing for Survival

    You may need less money in retirement than you think (medium):

    http://www.marketwatch.com/story/retiring-why-you-will-need-less-money-than-you-think-2015-04-13?link=MW_popular

    News on Stocks in Our Portfolios

    Exxon Mobil beats by $0.35, beats on revenue

    · Exxon Mobil (NYSE:XOM): Q1 EPS of $1.17 beats by $0.35.

    · Revenue of $67.62B (-36.7% Y/Y) beats by $14.47B.

    Automatic Data Processing beats by $0.02, beats on revenue

    · Automatic Data Processing (NASDAQ:ADP): FQ3 EPS of $1.04 beats by $0.02.

    · Revenue of $3.03B (+7.1% Y/Y) beats by $10M.

    Teva Pharmaceutical beats by $0.11, beats on revenue

    · Teva Pharmaceutical (NYSE:TEVA): Q1 EPS of $1.36 beats by $0.11.

    · Revenue of $4.98B (-0.4% Y/Y) beats by $140M.

    ConocoPhillips beats by $0.01

    · ConocoPhillips (NYSE:COP): Q1 EPS of -$0.18 beats by $0.01

    Franklin Resources beats by $0.12, misses on revenue

      • Franklin Resources (NYSE:BEN): FQ2 EPS of $0.98 beats by $0.12.
      • Revenue of $2B (-2.9% Y/Y) misses by $50M.

    MasterCard beats by $0.09, misses on revenue

    · MasterCard (NYSE:MA): Q1 EPS of $0.89 beats by $0.09.

    · Revenue of $2.23B (+2.8% Y/Y) misses by $50M.

    Economics

    This Week's Data

    Weekly jobless claims fell 34,000 versus expectations of an 8,000 decline.

    March personal income was flat versus estimates of a rise of 0.2%; personal spending was up 0.4% versus forecasts of up 0.5%.

    Other

    Politics

    Domestic

    Quote of the day (short):

    http://cafehayek.com/2015/04/quotation-of-the-day-1337.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

    International War Against Radical Islam

    Apr 30 9:33 AM | Link | Comment!
  • The Morning Call--Group Think

    The Market

    Technical

    The indices (DJIA 18110, S&P 2114) bounced yesterday. The S&P remained above its 100 day moving average and traded back above its prior high for the second time. A close above that level today would indicate that the trend to lower highs has been broken. The Dow continued to trade above its 100 day moving average but below its prior high.

    Longer term, the indices remained well within their uptrends across all timeframes: short term (17060-19857, 1997-2978), intermediate term (17174-22300, 1802-2575 and long term (5369-18873, 797-2129).

    Volume was up slightly; breadth improved. The VIX dropped 5%, finishing below its 100 day moving average and within short and intermediate term trading ranges. It remains a short distance away from the lower boundaries of both its short and long term trading ranges. The latter should provide strong support. For that reason, I continue to think that the VIX remains a reasonably priced hedge.

    Divergences in the NASDAQ rally (medium):

    http://jlfmi.tumblr.com/post/117558503780/less-than-meets-the-eye-in-nasdaq-rally

    The long Treasury got smacked, ending once again below its 100 day moving average and the lower boundary of the very short term trading range. As you know, this is the second time this has occurred in the last week. Plus yesterday's close was below the prior low, suggesting that there is more downside. So it looks like we may get a challenge to the lower boundaries of its short term trading range and intermediate term uptrend.

    GLD had another good up day, rising above its 100 day moving average but remaining within a developing head and shoulders pattern, a completion of which would set it up for a challenge of the lower boundary of its long term downtrend.

    Bottom line: the bulls grabbed at the reins yesterday, though the recent pin action suggests that the Averages are now trading in contested range. The indices are out of sync with respect to the recent trend of lower highs; but they are within striking range of their all-time highs and the upper boundaries of their long term uptrends. It seems increasingly likely that they will do so. However, I believe that the latter presents formidable resistance.

    Short term, I still think the risk/reward setup favors the risk side. Longer term, the momentum remains to the upside.

    Pre-election year May's Market performance has not been so good (short):

    http://jeffhirsch.tumblr.com/post/117627935068/pre-election-year-mays-not-so-great-10th

    Fundamental

    Headlines

    Yesterday's US economic data was mixed (which in and of itself is an improvement) with month to date retail chain store sales and the February Case Shiller home price index recording favorable comparisons while April consumer confidence and the April Richmond Fed's manufacturing index were disappointing. I have said before that I will take good news wherever I can get it, but those two stats do nothing to alter the current trend in weaker numbers.

    Maybe it hasn't been the weather (short and a must read):

    http://blog.yardeni.com/2015/04/s-500-forward-earnings-driving-economic.html

    Overseas, we weren't so lucky.

    (1) Japan reported April retail sales lower than anticipated,

    Japan is the poster child for QE failure (medium):

    http://www.zerohedge.com/news/2015-04-28/japan-proves-monetary-policy-nothing-destructive

    (2) the Bank of China denied Monday's speculation that it would implement QE, but the WSJ reported that there was a credit easing program coming.

    ***overnight, the central banks of Thailand and Sweden made additional monetary easing moves.

    (3) the UK reported that first quarter GDP grew one half of expectations [did they have bad weather and a west coast longshoremen's strike, too?],

    ***overnight, it was reported that lending by EU banks to companies and households rose for the first time in three years,

    (4) the only potential bright spot was the Greek PM promising that he would keep Greece in the EU. But then we have heard that story before.

    ***overnight, along those lines, today Greece will present a (new and improved) draft for fiscal reforms mandated by the troika. If only.

    If Greece does default, here are some alternative strategies (medium):

    http://www.zerohedge.com/news/2015-04-28/how-will-greece-default-let-us-count-ways

    Bottom line: while we at least got a couple of upbeat economic datapoints yesterday, the overall trend remains negative both here and abroad; making matters a bit worse, the news flow out of Europe is no longer constructive. On the other hand, China appears to be ready to do some kind of easing. Plus the regular FOMC meeting concludes today and hope springs eternal that it will make yet another dovish policy statement.

    A letter to the Fed (medium):

    http://www.zerohedge.com/news/2015-04-29/dear-fed-it%E2%80%99s-time-lean-or-leave

    That investors can ignore slowing global economic growth off of a subpar recovery, the obvious distortions in asset pricing and misallocation of investment capital, the worldwide embrace for a monetary policy with no record of success either historically or at present and no clear plan for an exit and yet value equities at present rich levels is a testament to group think. In that kind of atmosphere, I believe that the best strategy is defense. Husband cash and wait for the light to come on.

    I can't emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

    Bear in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.

    Where stocks need to be priced to generate a 10% annual return (medium):

    http://thefelderreport.com/2015/04/27/its-going-to-take-a-major-bear-market-before-stocks-can-live-up-to-investors-lofty-expectations/

    Could bonds outperform stocks in the next Fed tightening? (medium):

    http://ftalphaville.ft.com/2015/04/27/2127890/could-credit-beat-stocks-when-the-fed-tightens/

    The latest from John Hussman (medium):

    http://www.advisorperspectives.com/commentaries/20150427-hussman-funds-fair-value-on-the-s-p-500-has-three-digits

    Investing for Survival from Morgan Housel

    Imagine you're a weather forecaster. For the last four years, you've predicted a massive blizzard and frigid temperatures. But it never came. It's actually been downright hot for the four years straight. Ninety degrees and sunny every day.

    Now imagine you resign from the meteorology business because you are sick and tired -- sick and tired -- of atmospheric pressure. "All of my forecasting models tell me it should be snowing," you say. "But like some spoiled brat, atmospheric pressure waltzes in here like he owns the place, keeping it hot day after day. This pressure has no business being in the sky. It's appalling how much gall the atmosphere has."

    This would, of course, be ridiculous. Your viewers would tell you that the weather is always right, and you, as a forecaster, are the one who is wrong. It doesn't matter if it's abnormally hot. Your job as a forecaster was to predict that it would be abnormally hot. That's why they pay you to be a forecaster.

    Finance is different. Unlike all other fields, finance people get to blame their poor forecasting skills on reality.

    Hedge fund Rinehart Capital Partners LLC announced it was closing last week. It's easy to see why. According to The Wall Street Journal, the fund lost 7% in 2012, another 15% in 2013, and is down 4% this year. The S&P 500 gained 68.2% during this period.

    Reinhart founder Andrew Cunagin wrote a letter to investors announcing the closure. He explained his poor performance by blaming high-frequency traders, the Fed, and a market that went higher when he doesn't think it should have:

    Just as in previous boom-bust cycles, the seeds of destruction are sewn in the illusion of trend masquerading as truth, with momentum seeming to validate a widening gap between perception and economic reality. And just as in past cycles, the manager who doesn't subscribe to the new rules, who goes against the grain of convention is viewed as out of touch or left behind ...

    Since the beginning of our fund's drawdown in early 2012, a Bloomberg index of the "Worst Balance Sheet" companies of the S&P500 has returned to-date over +30% on an annualized basis. An MSCI index of the "Most-Shorted" companies of the Russell 3000-a proxy for the visibility of bad valuations, bad managements, and bad fundamentals-has also returned over +30% annualized. These perversions are even more pronounced within EMs, exacerbated by record fund outflows in the first half of 2014, exceeding even those of the 2008 crisis. This dash for trash puts to shame even the speculative excesses of the dot.com era. This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors. They only serve to further undermine the integrity of public markets, which will ultimately bring about their rationalization. Nonetheless, it's an internal dynamic to which we are uniquely levered, by design, as an alpha strategy. One thing is certain, managers whose strategies are working may be bright and well-informed with advanced metrics on which they make investment decisions, but a reasonable assessment of value is not among them. Do previous cycles not bear asking, what other measure is there?

    Look, stocks have gone up a lot. Some sketchy companies are expensive by any definition.

    But the entire history of the stock market is a pendulum swinging from absurdity to absurdity. There is no such thing as a normal, healthy market. It's perpetually in some state of irrationality that no one can explain.

    You should never blame an irrational market for your terrible performance. The market is always right, even if you disagree with it. It's your strategy that got it wrong. And "wrong" is the right word to use here because your actions dragged performance down so far that you're being forced to close, forfeiting any chance of vindication. "The market can stay irrational longer than you can stay solvent," John Maynard Keynes famously said.

    What bugs me about this is incentives. When hedge fund managers get it right, they earn multi-million, even billion-dollar paydays, and are paraded around as living gods. When they get it wrong, it's someone else's fault. The Fed is irresponsible, the president is ruining the economy, high-frequency traders are destroying confidence, Congress is creating uncertainty, yadda yadda yadda.

    Rarely is anyone in finance forced to admit what the weatherman would have to: I was wrong.

    News on Stocks in Our Portfolios

    General Dynamics beats by $0.22, beats on revenue

    · General Dynamics (NYSE:GD): Q1 EPS of $2.14 beats by $0.22.

    · Revenue of $7.78B (+7.0% Y/Y) beats by $360M.

    Praxair misses by $0.01, misses on revenue

    · Praxair (NYSE:PX): Q1 EPS of $1.43 misses by $0.01.

    · Revenue of $2.76B (-8.9% Y/Y) misses by $200M.

    Economics

    This Week's Data

    Month to date retail chain store sales improved from +0.8% for the comparable term last year to +1.4%.

    The February Case Shiller home price index rose 0.9% versus expectations of up 0.7%.

    http://www.calculatedriskblog.com/2015/04/case-shiller-national-house-price-index.html

    April consumer confidence came in at 95.2 versus forecasts of 103.0.

    http://www.advisorperspectives.com/dshort/updates/Conference-Board-Consumer-Confidence-Index.php

    The April Richmond Fed manufacturing index was reported at -3 versus consensus of -2.

    http://www.advisorperspectives.com/dshort/commentaries/Richmond-Fed-Manufacturing.php

    Weekly mortgage applications fell 2.3% while purchase applications were flat.

    First quarter GDP came in +0.2% versus estimates of +1.0%; the price deflator was -0.1% versus expectations of +0.5%.

    Other

    The vicious feedback loop of oil prices and oil company debt (medium):

    http://www.zerohedge.com/news/2015-04-28/debt-pile-fuel-further-oil-price-pressure

    Politics

    Domestic

    A hopeful sign? Liberals against a tax increase. (medium):

    http://reason.com/archives/2015/04/27/when-liberalism-collides-with-reality

    Accounting at the Clinton Foundation (medium):

    http://www.zerohedge.com/news/2015-04-28/government-watchdog-calls-clinton-foundation-slush-fund

    International War Against Radical Islam

    Apr 29 9:04 AM | Link | Comment!
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